53% of Canadians on the brink of insolvency

"The party is over.

A new survey by MNP Ltd. has found that 53 per cent of respondents said they are $200 or less away from not being able to meet all of their monthly bills and debt obligations. The number is alarming as it marks a five-year high in the agency's consumer debt index and marks a 10-point jump from a December survey.
This number includes the 30 per cent who said they are already insolvent, with no money left over at the end of the month."


"Households may have tried to save more and spend less amid the pandemic, and - to be fair - some have been very successful at doing just that. However, there are others who have taken on more debt due to job loss, wage reductions or desperately trying to keep small businesses afloat.
According to MNP, a quarter of Canadians took on more debt amid the pandemic. Among respondents, 20 per cent said they used savings to pay bills, 14 per cent used credit cards, seven per cent used a line of credit, while three per cent took out a bank loan or deferred mortgage payments, respectively.
“Those taking on more debt are becoming increasingly vulnerable to interest rate increases in the future. They might find that their debt becomes unaffordable when that happens,” Bazian wrote. "

https://www.bnnbloomberg.ca/53-of-ca...c4LdME69aLQkJs

Posted that yesterday in a thread .

If interest rates go back to where they were less than 2 years ago many more will fold.

This crazy house market Could be a disaster in 5 years from now. No one is thinking about the future everyone is just stuck in a rut of now and covid .

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I'm sticking to my guns. Something will trigger a housing market collapse ... perhaps rising interest rates. At that stage, there will be a lot of value in the residential market ... so I'll wait for then, before I invest, even though it will likely take years.

So this confusing in other articles they say Canadians have saved hordes of cash as well people are buying up everything.

So which is it?

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Originally Posted by greatwhite

So this confusing in other articles they say Canadians have saved hordes of cash as well people are buying up everything.

So which is it?

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The 'hordes' of cash is propaganda...the working class is using any savings to pay down debt...but the Liberals , not understanding that concept are telling us that they're going to out after the lockdowns and spend like crazy and stimulate the economy. Freeland has said that a few times.

There is big spending on big home reno projects and new homes....at least there was till wood tripled in price.

Once the pandemic is over and the Banks start asking for their mortgage payments again...there will be a reckoning.

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According to MNP, a quarter of Canadians took on more debt amid the pandemic. Among respondents, 20 per cent said they used savings to pay bills, 14 per cent used credit cards, seven per cent used a line of credit, while three per cent took out a bank loan or deferred mortgage payments, respectively.

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"Higher rates should be a real concern to those who borrow and naively think rates won't head higher once the economy warrants it. In fact, I find it outrageous that six in ten respondents said that the current low-rate environment makes it a good time to buy things they might not otherwise be able to afford."

So this is the "key" paragraph to me, why would anybody buy something they know they cannot really afford and hope that the interest rates do not go up?

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Originally Posted by Gilroy

"Higher rates should be a real concern to those who borrow and naively think rates won't head higher once the economy warrants it. In fact, I find it outrageous that six in ten respondents said that the current low-rate environment makes it a good time to buy things they might not otherwise be able to afford."

So this is the "key" paragraph to me, why would anybody buy something they know they cannot really afford and hope that the interest rates do not go up?

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I think they are pushing for it the real estate agents . They will push for a sale that's why we are seeing more bids and the offers go up substantially . Easy payments for now with teaser rates until it all comes to an end.

Heck even our government thinks this low interest rates are fantastic . If you can afford it I guess it's ok but for many they will be burned.

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Originally Posted by Gilroy

So this is the "key" paragraph to me, why would anybody buy something they know they cannot really afford and hope that the interest rates do not go up?

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You'd have to stand outside any RV dealership, ATV/Snowmachine dealership, Marine dealership or any other multitude of toy stores to ask that question. You may get a lot of "deer in the headlights" looks, but it's a good place to ask that question. Just don't expect a sensible answer?

I think a lot of people are "investing" in real estate as a hedge against the impending rise in inflation. The Canadian and U.S. governments have been printing money at an alarming rate the last few years, somethings go to give. That being said paying an over inflated price for real estate does little to remedy the situation. For sure agents are embellishing the market and making out like bandits. There is a huge transfer of wealth happening now from the middle class to the "elites" and I believe all markets are being manipulated to facilitate the event.

They need to cool down the housing market. I am not sure how they will do it without doing more harm than good.

- Increase the stress test requirements - hurt 1st home buyers (who are really not the problem)
- Increase interest rates - fair and equitable IMHO.......would also benefit investments
- Remove the exception of capital gains on primary residence -or- change the rules. Presently one needs to live in a house (as their primary residence) for 12 months before selling it and avoiding capital gains. House flippers drive up demand and price in certain areas. Removing capital gains would not help because empty nesters would be more apt stay in their house longer to defer the tax and therefore limit the house stock available for first time buyers. Extending the time period to 5 or 7 years would definitely limit the number of flipped houses in the market but not eliminate it in certain areas. But there are always loop holes and people will find and exploit them.

Personally I find that COVID is the driving factor. People that just recently had the ability to work from home are moving into areas they want to live - the migration from urban to rural areas. The issue is when things get back to normal - and they will, companies will start recalling workers back to the office and some tough decisions will have to be made. The people that have decided to move outside GTA can now deal with a long commute or you can choose to leave your job, and find something closer to where you now live. Most companies do not want to issue office workers with a T2200 because that may set a precedence for permanently 'working from home' rather than 'working from home' as a temporary measure due to the pandemic.

There are a lot of people that think this is the new norm - working remotely but I highly doubt it. Let's take Joe for example. Joe works in the finance team and has an office in Mississauga. Joe's salary is $100k/year because that is the going wage for people in this industry living in the GTA. Joe decides to move to Burks Falls after selling his house in Oakville because he can now work remotely. Why is the company still paying Joe a $100k salary when his cost of living has been reduced greatly and is no longer in many face to face meetings. If Joe's job can be done remotely why would the company not near source his job to in someone in Northern Ontario or Eastern Canada who would do it for $60k/year? Why would the company continue to pay a GTA salary when the person is no longer living in the GTA?

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Originally Posted by greatwhite

So this confusing in other articles they say Canadians have saved hordes of cash as well people are buying up everything.

So which is it?

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Not sure but I was at the Jewelers a few month ago.... I asked if business was any good. She said it has never been better.... I said really? She went on to say, most can't take their loved one on vacation (covid) so are spending the money on Jeweler instead. I guess some are booming, some not so much. Interesting times for sure.

All excellent points......^^^^^^^^^^

May I add that the people who were living in condos and bought rural acreage will soon come to realize that mowing 2 acres and plowing a 200 feet driveway gets tedious real quick. It takes a special type of person to own such a property unless you have oodles of cash to spend on property maintenance companies. Some may adapt but a reverse migration is likely to occur.

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Originally Posted by greatwhite

So this confusing in other articles they say Canadians have saved hordes of cash as well people are buying up everything.

So which is it?

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I think there are THREE social classes (in respects to money/finances) ... baby boomers have $1 trillion in wealth, that's about to be transferred to GEN X, Y. Then there's GEN X/Y ... not doing too bad, fortunately they were raised in homes (by Baby Boomers) with good fiscal management, so they used that, and yes, they got their homes at reasonable prices. Then there's the Millenials ... spending like crazy ...

In everyone of those classes, there are people that don't fit the mold for sure ... Baby Boomers who are in trouble, and Millenials that are going to do just fine (in fact great) ... so we are talking generalities here.

Also, I think the problem is more CASH FLOW ... not actual debt. A good portion of that debt is going into real-estate (primary home) ... which retains value, so it's not necessarily all bad debt ... you have capital ... but the issue will be managing that debt, particularly if the interest rates go up.

Cash flow... but where is it flowing, when the average Canadian is paying 43% of their income in taxes, discretionary and essentials money will be short.
https://globalnews.ca/news/3691159/c...ser-institute/

The Federal gov't added over $40,000,000,000 in INTEREST PAYMENTS, not reducing debt etc. just the payments, where will that come from, buying oil from overseas, lockdowns... just creating more and more debt! Interest rates, inflation.... read what happened to Germany, you could sell your house on Monday and buy a loaf of bread with that amount a week later. I have a few of those old Ten million mark bills, so many still out there I think I paid about $1 for it.

Actions and choices have an impact on a person but only the gov't can completely f*** a couple generations at once.

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Originally Posted by impact

All excellent points......^^^^^^^^^^

May I add that the people who were living in condos and bought rural acreage will soon come to realize that mowing 2 acres and plowing a 200 feet driveway gets tedious real quick. It takes a special type of person to own such a property unless you have oodles of cash to spend on property maintenance companies. Some may adapt but a reverse migration is likely to occur.

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That's very true..average 4 yrs for City folk to turn around and go back...according to the local Real Estate office. The agent told me he sold the same country home 7 times. Most common excuse ..kids and wife weren't happy. In fact exactly how I got mine. Young family was in it for 5 yrs.

Not a Happy wife...Not a happy life :(

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Originally Posted by impact

May I add that the people who were living in condos and bought rural acreage will soon come to realize that mowing 2 acres and plowing a 200 feet driveway gets tedious real quick. It takes a special type of person to own such a property unless you have oodles of cash to spend on property maintenance companies. Some may adapt but a reverse migration is likely to occur.

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Having lived in a rural area most of my life, I've witnessed this numerous times. Citiot wants a change in their lifestyle, clean environment, spacious surroundings, back to nature. Then their well goes dry? Then the septic plugs up? The rural schools may not offer the extracurricular activities that are found in the city? 1 hour drive to get to the big box stores, a half hour before they close? I've seen it so many times, it's become laughable. Some will embrace it, most do not.

I know that I have never been busier.

The industrial and automation electrical business is really going strong in the OEM and end user markets in Canada. Our numbers are up well over 2020 - shaping up to be a good year. On the side business I have never been busier - people are upgrading, renovating and fixing up their homes (especially kitchens, basements and garage man caves and she sheds). I guess since our government has us in house arrest we might as well enjoy the space more.

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Originally Posted by Bushmoose

You'd have to stand outside any RV dealership, ATV/Snowmachine dealership, Marine dealership or any other multitude of toy stores to ask that question. You may get a lot of "deer in the headlights" looks, but it's a good place to ask that question. Just don't expect a sensible answer?

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Yes all these items are hot for the past year with many people blowing their CERB money. I’m hoping there will be a glut of it in the market when things go back to normal and prices will fall through the floor, but that’s likely wishful thinking.

Yeah I have seen that before, A fella I was acquainted with moved in beside a dairy farm (my whole area is surrounded by dairy farms) then sold 2 years later, he said he didn't know it would stink.

Actually my family rarely notices anymore, then again walking downtown Ottawa I see and smell enough stinky people

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Originally Posted by 73hunter

Yes all these items are hot for the past year with many people blowing their CERB money. I’m hoping there will be a glut of it in the market when things go back to normal and prices will fall through the floor, but that’s likely wishful thinking.

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Yea when you head into solvency because of poor financial decisions, those kind of toys get sold first...HaHa.

So here's something I find confusing. Occasionally when I go back to work at the lawn care company, which is my fallback in between jobs I usually end up in the middle income neighborhood Huntclub in Ottawa. Driving through there where the newest houses are I will see everyone has a brand new car maybe two each worth 75K and the house 3 years ago would have been worth 300K.

So is everyone making 200K +? I can't afford all that and I have been in the upper 10% for 15 years now obviously I think to myself I must be doing something wrong. It's only been the last 3 years that I even started spending money on myself and just the past two years I started doing upgrades to my house as I had to save up the cash first as I didn't want to take out any loans.

I have 14K more to do on the house reface kitchen ($6000), new flooring (do myself $2000), 3 more windows ($2000), parge foundation do myself ($500), and new roof for garage (do myself $2000), two new doors (do myself $1000).
I have the cash but waiting until my contract is confirmed in June. I can't imagine going into more debt unless it is actually necessary. The only time I take on debt was mostly when I was young in inexperienced such as a car which I need to get to work, but I buy mostly used cars, a mortgage as you need a house. I would never borrow to go on a trip anyplace.

I have money set aside for buying when people start selling because they are in trouble, but nothing seems to be happening yet.

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Originally Posted by MikePal

Yea when you head into solvency because of poor financial decisions, those kind of toys get sold first...HaHa.

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Quote:

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Originally Posted by MikePal

Yea when you head into solvency because of poor financial decisions, those kind of toys get sold first...HaHa.

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I am starting to see the people complaining about their tax bill - CERB recipients. I have family in Windsor that are pissing and moaning about their poor kids tax bill (eye roll). I asked my sister-in-law if they saved any of it because they knew they were going to be taxed. I then asked how can someone working retail, and a security guard making close to minimum wage still living at home spend their CERB cheque on? What changed in their lifestyle because getting CERB was like an instant raise of about 100% plus.

This will be a great lesson on adulting 101.

Re-Real Estate prices.
I am not 100% sure i can present fully the theory i am to describe,and I am not 100% sold on it either.
Yet-Interesting and makes good sense.

Increasing Real Estate prices works greatly for the Government and Pension Funds(think RRSP)
Think growing number of Canadians entering retirement.
We all are chalked up to receive so much money/ month.
More takers-less money to share.

How to increase the $ amount in those Funds? Increase value of the "things"they invested into.
Real Estate is one of them.
The more the Fund has $,the more chances they will be able make their obligations.

Thus- (i can be wrong)this surge works for just about everyone(for now)
Except the New Home buyers. But hey, they are not the main focus(this time).
Plus-the bigger the Mortgage-the more to pay interest-the longer to pay interest-Banks must love it.
Likely it will be in no ones interest to stop this cycle.
Slow it down -yes.To a degree.

How this will end-i do not know,but more then once in our life Big Factors behind the curtain decided our fate.............

as Pierre Poilievre pointed out:

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Banks are warning of a housing bubble, as people take on houses & mortgages they can't afford
So why do these same banks lend mortgages that might never be repaid?

Because government, not the banks, take the losses, with over $500B in CMHC loan loss insurance.

Banks get profit, taxpayers get risk & mortgage loans debtonate.

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Originally Posted by MikePal

as Pierre Poilievre pointed out:

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Yes, I also listened to the video. Looks like if the bubble bursts taxpayers (CMHC) will be on the hook for the mortgage defaults exceeding the 16 billion dollar slush fund.

Here's the link if you haven't seen it :

https://www.facebook.com/PierrePoili...58213349752379

The comments below the video are as educational !!

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Originally Posted by greatwhite

Driving through there where the newest houses are I will see everyone has a brand new car maybe two each worth 75K and the house 3 years ago would have been worth 300K.

So is everyone making 200K +? I can't afford all that and I have been in the upper 10% for 15 years now obviously I think to myself I must be doing something wrong. It's only been the last 3 years that I even started spending money on myself and just the past two years I started doing upgrades to my house as I had to save up the cash first as I didn't want to take out any loans.

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The folks may be public service employees working from the "bottomless pit". They've also been using SLOC on their homes. They likely bought @ $400K (give or take). With RE prices going insane over the last coupe of years,the SLOC qualification allow them to increase the debt to equity increasing the amount of the SLOC. That allows them to drive real hard bargains for car loans or use the SLOC to pay for the vehicle,outright. Trouble arises when mortgage renewal time rolls around. Banks will have tightened financing rules and homeowners can find themselves in deep,deep doo-doo.