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Dabills, under your keen analysis, most of us are broke then.

Mortgage equals debt
Car loan or lease equals debt
Some of the younger folks who own a home have OSAP loans to still pay off, that's debt too

Having debt does not make you broke. If you are spending more than what you earn....you are on your way, but people can correct their behaviour and get out of that trouble. You don't want to know what being broke feels like, having virtually nothing to try and feed and care for your family.

I think some concern is that the vast majority of the average Canadians sense of net worth is in housing. People have homes worth $500k, but no cash and $3000 RRSP's. If the net worth was more diversified across asset classes, it wouldn't be as much of a concern, but it's not. There is over exposure to housing.

Having said that I think we all agree that if the landscape stays at status quo, the housing market will be OK. Economic shocks that affect employment or cost of borrowing will destroy it.

For sure. But nothing in the statistics published shows that people are using credit to pay for day to day living expenses -- without which they would be underwater. Also, the number is slightly skewed because we tend to look at it by comparing to the US, which is wrong. They have completely different expense/tax structure.

Inside those debt numbers are car payments (short term, fixed period debt), education debt (debatable but still considered a "wealth building" debt), mortgage (again, debatable but still considered "wealth building" debt), and investment debt (again, "wealth building"). Investment debt could be RRSP loans, home business expansion loans, home renovation loans, etc.

Basically, the price of credit is ridiculously cheap right now. For people in a good spot (good job, employed), why not go in more debt. Get that backyard renovated. Get the basement finished. Borrow to send your kid to university (instead of pulling money out of your higher paying investments). Borrow at 0% to buy that brand new car to replace the current aging vehicle which likely only has another year or two of commuting left. Maybe borrow and buy that second property.. or vacation home. Maybe it's time to borrow and buy that boat you intend to use to fish every day into retirement.

Regardless, many different reasons for taking on debt. With debt costs BELOW inflation, even the smartest most financially savvy person would be stupid not to take advantage of them. This is the primary reason why the government keeps the rates so low, to encourage people to spend now -- buy the things now they would have put off for a little longer which helps stimulate the economy.

Low interest rates don't cause the "broke" people to put on more credit card debt. Low rates are not reflected in credit card rates -- they are still 12-15-18%. Only when you borrow from the bank (or a car manufacturer) will you see the reduced rates. This is why the debt ratio is misleading. Immediately everyone just assumes everyone is "broke" with a large credit card balance.

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Then how can you say everyone is broke?

Because it helps him make his point and sleep at night.

Lol wow, because clearly if people have nice homes, nice cars, and are taking vacations then they must not be broke? Tons of those people have giant mortgages, leased cars, and are making the minimum payment on their credit cards. I guess if your definition of "broke" is defined by what stuff you have then that tells us something about your financial situation. I define "broke" by assets minus liabilities being a negative value, and Dabills is correct that there are many people across the country who are broke, but that doesn't mean you can tell without looking at their financial statements.

Good points above, I concur that it's a definite red flag if your assests minus liabilities are in the negative. You may not be broke but your certainly in a very vulnerable position. One thing Dabills brought up is the proliferation of instant cash loan companies. It seems they have sprung up on almost every corner across the country. I too have wondered just who are the typical clients supporting this demand & resigned to accepting it as par for the course to pay their high interest rates & fees.

Maybe I'm the exception but I see these low interest rates offered by lending institutions (except for the legal loan sharks above ) in our present economy as an opportunity to accelerate paying down debt not as an excuse to go out and incur even more.

Extremely well put! I don't think most people see it that way though. I also find the proliferation of instant cash loan services concerning, especially given how widespread they have become it seems unlikely it is supported just by one time users who are in a real pinch, but people who regularly find themselves short on cash. Not really surprising though that someone would be short on cash after paying the exorbitant rates these services charge.

The payday places for the most part just took the places of the banks, how many banks in Parkdale and Regent Park? As opposed to Milton, one on e ery corner and open Sundays,

Rent going up!

http://www.thestar.com/business/real_es ... lines.html



In other news, house prices going nowhere..

http://fullcomment.nationalpost.com/201 ... he-loonie/

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I am writing a post to keep this thread going, because it's too short IMO.

and not enough conflicting data

Again, this is using a "perfect world" scenario. Where the landlord never raises your rent more than 1.5% per year for all eternity (I believe GTA is reporting 5% a year right now) and where the landlord never passes on those pesky repair bills as part of a rental increase (they usually raise your rent or just leave the house in disrepair and let you and your family deal with the leaky foundation or roof). It also assumes every renter is investing every single dime that wouldn't have gone into the mortgage into a well paying investment.

The numbers will definitely work. Look at Kevin O'Leary.

The reality is, the average Joe is 100x better off owning than renting (forced savings vehicle). Most "renters" I know, blow every cent of the money left over at the end of the month.

At the same time, it really is about lifestyle. We can't take money with us when we die. Is it more important to have a home or to have a place to live. Why do people buy BMW's when you could buy a KIA and invest the rest? Why buy a T-Bone steak when you could buy a blade steak and invest the rest? Everyone has different priorities in life... Some want to have that place that is theirs.. only theirs.. where a landlord can't dictate what they can/can't do and they aren't at the mercy of the landlords whim (kick you out and sell when the market is good and rental units are scarce).

I do agree, a house is never an investment long term. It's just a place to live where you should get back all the money you put in at the end.

Now short term? It's like any investment.. comes with risks. I can sell my "home" this month for $135,000 more than I paid 2 years ago. I could rent and invest that $135,000 -- but I don't want to. I enjoy the lifestyle that comes with home ownership. I know full well, the market will go down at some point.. And back up at another.

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Well said dtc.

Everyone blows money. But the homeowner can only "blow" what's left after the mortgage is paid. Thus the "forced savings" of a home. The renter pays rent to the landlord and never sees it again and whatever they end up "blowing" is also gone forever.

Are you saying that a landlord is being a charity... that the renter isn't in fact buying the house for them if not buying the house and giving them additional funds?

The landlord is in the exact same situation as the home owner.
They have a down payment in (say 25%) pay a mortgage, property taxes, and maintenance. The sum of all those amounts = your rent. Sometimes they charge you a bit more than that to make a monthly income. Most settle for the fact that in 10-15 years, they sell the rental property, and cash in on all the "forced savings" you submitted through rent. Or they wait for the house to be paid off, by the renter, and then every rent payment after that is pure income (while still having the equity in the house growing modestly).

Again, they are using funny numbers and wild estimates to make their case. They are assuming every person is investing 100% of the difference in investments paying very well.. and assuming the real estate is paying very poorly (inflation). They are also assuming the landlord is never going to raise the rent by more than 1.5% a year -- less than inflation.

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