Why Canadians Should Worry About Debt, Not Delinquency

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Posted in Debt Help
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

consumer debt levels delinquency patterns

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Interest rates are low and credit is readily accessible, making it easy to take on more debt. What's more is that debt becomes manageable in this kind of climate, until of course, it's not.

This summer the Bank of Canada lowered interest rates, and since that time, media sources have been reporting that Canadians are managing their debt levels and that delinquency rates have fallen. This week I've invited two Licensed Insolvency Trustees who are seeing the impact of strong regional trends in consumer debt. Like Toronto, the real estate market in Vancouver is in rapid growth mode and Blair Mantin from Sands & Associates sees how this affects consumer mortgage levels in British Columbia. Barton Goth from Goth and Company is seeing first hand the impact the loss of oil based jobs is having on Albertans. We talk about the kinds of  delinquency trends they're seeing and whether consumers should be worried about their debt and the potential of declaring bankruptcy.

Does our level of debt actually matter?

To begin, I ask Blair and Bart whether Canadian debt levels actually matter.

TransUnion recently reported that delinquency rates have dropped. This means that more people were found to have paid their debts on time. If Canadians are in fact managing their debt, should we be worried about it?

Bart and Blair agree that debt levels do matter and that we should never become complacent with the amount of debt that we take on. Although it may seem manageable now, any slight increase in interest rates, unexpected expenses or unpredictable events, such as illness, can put stress on your finances and make that same debt difficult to service.

As Blair points out, the stats about low delinquency rates across Canada are misleading. Too many Canadians are paying only the minimum payments allowing them to avoid delinquency.

I think it gives people a false sense of security, that it's okay if you just make the minimum payment.

Bart puts this concept into perspective explaining that,

I think of it like treading water. There's a lot of people out there who have far too much debt and they're able to, [with] the current levels of interest, or at least the interest that's been set by the government, to tread water for a little bit longer.

Consequently,

as soon as that change starts to hit us and we see any change in those interest rates, the level of affordability changes dramatically. And I think we'll see a lot of people that no longer have the ability to tread water, but they start to sink, and sink fast.

A clear example of this kind of shift due to changes in the economy is being seen in Alberta's oil industry. The boom of the industry brought many people to northern towns and offered them the ability to buy things like a house, car and even recreational assets like ATVs. Now, many of those workers are facing layoffs or decreased incomes and the debt that they were once able to afford, has become unmanageable.

This is the reason why consumer insolvencies were up almost 27% in July 2015.

Why are Canadians filing bankruptcy when they are not delinquent on their debts?

If delinquency rates are down and Canadians are managing their debt, then why do those same individuals end up filing a consumer proposal or bankruptcy?

Blair points out that,

I've seen some statistics upwards of 70% of people that come into an office to file bankruptcy or a proposal, they've actually got perfect credit. It doesn't mean they're ever going to pay this debt off, but what it means is that they haven't gone delinquent.

Having perfect credit creates the perception that debt is manageable. For many, having perfect credit is everything and as long as the minimums are paid their credit score remains high, they avoid collection calls and they're able to take on more credit to continue this cycle; without actually paying off the debt. Blair explains that

when they finally realize there's no happy ending here, they're not going delinquent, they're not waiting three months and getting tons of calls and being harassed, they're coming in and dealing with their problem kind of straightaway.

This kind of strategy makes it seem as though Canadians are handling their debts, but really, all we're doing is biding our time until it becomes too much to deal with. If only paying the minimums ultimately leads to bankruptcy, perhaps the media needs a more realistic headline to reflect that current findings are only one part of our debt story and that the methods we're using to sustain our debt, aren't actually working.

Read the full transcript below for more information about:

  • Real estate markets across Canada and why many Canadians in city centres like Vancouver and Toronto are feeling "hopeless" about the possibility of ownership.
  • Advice for people looking to purchase a house in an out-of-reach market.
  • Advice for consumers with a massive debt load and perfect credit score.

Resources Mentioned in the Show:

Are you delinquent on your debt or are you worried about the fact that you might be soon? Leave a comment below, we'll answer any questions or concerns you may have about your debts.

FULL TRANSCRIPT show #60 with Blair Mantin and Bart Goth

consumer-debt-delinquency-transcript-2Doug Hoyes: The show is called Debt Free in 30, so today, not surprisingly, we're going to talk about debt, but with a bit of a different spin on the discussion.

It seems that every day the media has a story about how Canadians' debt levels are high, but it's not a problem because interest rates are low, so we're all still able to service our debts. I've heard that argument for many years now. The experts say it doesn’t really matter how high your debt is, as long as you can make the payments, all is good. I mean, I get it. If I have a $200,000 mortgage at a 10% interest rate, my monthly payments on a 25 year amortization are $1,789 a month. If the interest rate goes to 5%, then my payment drops to $1,063 a month, obviously a lot cheaper. So, I guess if I can afford to pay $1,789 a month, if interest rates are 10%, I can service a $200,000 mortgage. But if the interest rate is 5% well now I can afford to service a mortgage of over $300,000; that's the argument. Debt levels don’t matter, what matters is whether or not you're making your payments.

So, is that true? To find out I've asked back two of my guests back in season number one and we're going to try something new here on Debt Free in 30, we're going to do a round table discussion. So, instead of me interviewing one guest, I've got two guys on the line so the three of us are going to debate this issue and discuss it back and forth. So, I think this is an issue where the experiences, particularly with the real estate market and our resource based economy are different in different parts of Canada. So, I've asked two experts from western Canada to join me today. So, let's get started with introductions. Let's start out west, who are you and what do you do?

Blair Mantin: Oh thanks Doug, so my name is Blair Mantin and I'm a trustee with Sands & Associates. Sands & Associates is B.C's largest firm of trustees, credit counsellors and proposal administrators and we've got 15 offices centred around the Vancouver area, also on Vancouver Island and the interior of B.C as well.

Doug Hoyes: Great, well thanks for being here Blair. And over to Alberta, who are you and what do you do?

Bart Goth: Thanks Doug, I'm Bart Goth. I run a regional insolvency practice here that serves Edmonton and Northern Alberta. We've been serving our community for roughly 25 years. And of course we're in Alberta, so oil is not doing so well and that causes some issues in our province.

Doug Hoyes: Excellent, well thanks Blair and Bart for being here today and yes we are going to mention the word oil and resources as we get into this discussion. So, I want to start by getting both of your thoughts on this issue of whether or not the level of debt actually matters.

So, a while ago TransUnion, the big credit reporting agency, released a report saying that in the second quarter of 2015, so we're going back a little bit in time here, delinquency rates dropped. So, they define the delinquency rate as the ratio of all accounts that are 90 days or over past due. So, the way TransUnion does it, if you're a week late on a bill they don’t consider that to be delinquent. But once you get to be about three months behind, you're delinquent.

So, across Canada 2.58% of all accounts were delinquent in the second quarter or 2015, which is a 7% drop over the course of the last two years. It was as high as 2.78% in the second quarter of 2013. So, let's start with you, Blair. First of all what are the numbers in Vancouver, how do they compare with that Canadian average and what are you seeing out there?

Blair Mantin: Well, in terms of delinquency rates in Vancouver, they appear to be in line with other parts of the country, but you know, I'm really I guess a little bit shocked every time this story comes out. It's always the same story that delinquency rates are low, so therefore, you don’t need to worry about debt because I couldn’t be more at odds with that line of argument. I think it's completely the wrong statistic that we should be measuring on. I think it gives people a false sense of security, that it's okay if you just make the minimum payment. Well all you need to do is look at your credit card statement where it tells you, hey it's going to be 50 years or 70 years or 90 years if you're only making the minimum payments to actually get out of debt. Making the minimum payment is not going to solve any problems, all it's going to do is keep you in good stead with your credit rating and let you continue on with your financial problems, probably for a couple of years more until you're at a credit card [unintelligible].

Doug Hoyes: So, you're saying that debt levels do matter. Bart, what about you? What are you seeing out there in Edmonton numbers wise and practical wise?

Bart Goth: Well, we've had a little bit of change in our province but we're not significantly different than the national average. But I tend to agree completely with Blair on this. I think of it like treading water; there's a lot of people out there who have far too much debt and they're able - the current levels of interest, or at least the interest that's been set by the government, to tread water for a little bit longer. But as soon as that change starts to hit us and we see any change in those interest rates, the level of affordability changes dramatically. And I think we'll see a lot of people that no longer have the ability to tread water, but they start to sink, and sink fast.

Doug Hoyes: So, how then are Canadians able to deal with their debt if we're in what all the economists are calling a recession or a technical recession? So, is it as simple as well, interest rates are low and that's why it's happening? I'll start with you Bart, is that what's - why people don’t perceive this as a problem or is it something else?

Bart Goth: Well, we've had two things happening in my province. The first is interest rates are low and that's obviously across the country. And that enables people to afford what's perceived as a higher level of debt, but they can service it without any difficulty.

We've also gone through a substantial oil boom in my province, so we've seen high incomes associated with that, until fairly recently. And of course that's changed overnight almost, it seems. And now we're seeing the opposite; we're seeing dramatically changed, reduced incomes and the ability even with the current debt levels or current interest rates to cover the costs that are associated, is becoming a significant hardship in our province.

Doug Hoyes: So, it's an issue of both interest rates and income. If interest rates stay the same but incomes are dropping, then you can't pay your debts, simple as that. So, Blair, what are your thought son that? Are you seeing the same thing out in the Vancouver area?

Blair Mantin: Well, we're not seeing as much of the boom and the bust. I think for us that was really around the Olympics of 2010. I can't tell you the hangover affect of that. If you know a bunch of tradesmen or tradespersons who came in, they had a great couple of years preparing and then everything went dead for the period if the Olympics and about a year or two after. We definitely saw the boom and bust at that point.

But the one thing that I'm seeing now, and I think this might be consistent across the country, I'm curious to have the discussion, is most people are skipping the delinquency rate altogether. So, I've seen some statistics upwards of 70% of people that come into an office to file bankruptcy or proposal, they've actually got perfect credit. It doesn’t mean they're ever going to pay this debt off, but what it means is that they haven’t gone delinquent. And the reasons people do it, I think there's two reasons mainly, you know, one is nobody likes the collection calls and it's pretty easy to avoid collection calls if all you do is make the minimum payment every month. It doesn’t matter if you're never going to pay that debt off, but you're not going to get calls as long as you're doing exactly what they want you to do, which is make the minimum payment.

You know, I think the other reason is I think people have just had availability to credit well beyond what perhaps they should and should by financial justification means, income to asset and things like that. For a lot of years, people have been able to tap more credit perhaps than is healthy for them. So, they've had this runway to use and to avoid the collection calls. A lot of people are moving money around from one card to another. When they finally realize there's no happy ending here, they're not going delinquent, they're not waiting three months getting tons of calls and being harassed, they're coming in and dealing with their problem kind of straightaway.

Doug Hoyes: So, are you seeing the same thing Bart? And I thought that was a great line that Blair just used; they're skipping the delinquency rate, or the delinquency period, altogether. So, TransUnion defines delinquency, as I said, as being 90 days in arrears, well I think all the rest of us real people would say well if I'm a day behind I'm delinquent. But obviously, TransUnion is doing the numbers the way they want to do them; it's their study they can do it however they want.

Do you see that Bart? Do you see people coming in saying you know what? I need to do something, I've got to go bankrupt, I've got to do a consumer proposal and they show you all their statements and they've been making all their minimum payments? Is that a common thing that you would see?

Bart Goth: The majority of people I speak with, the first thing they tell me is, I have perfect credit. Now of course I might disagree with them a little bit, based on their credit worthiness and their level of indebtedness and all of that. But they have the perception that everything's been okay up to this point. Largely because they've been able to borrow from Peter to pay Paul, and they've kept that going long enough because they've had these large amounts of credit available just as Blair discussed. But they've come to a point where they realize, they're getting to be up against a wall, they're starting to run out, they're not able to qualify for more, and regardless of their ability to keep that floating overtime, they know they have to do something or otherwise it's going to get bad, and get bad fast.

Doug Hoyes: So, you said the word "perception," Blair what do you think of that then, is that true? Do people have the perception that things are actually better than they are for them?

Blair Mantin: I think so, Doug. I think where I see a big disconnect is people's perception of their credit rating and, you know, what it does for you and the importance and all of that. And, you know, everyone that I meet, they come in and they want perfect credit, essentially. They really understand it's been drilled into your whole life you want to have perfect credit, but you're not always sure why. So, I'll be sitting across the table from somebody who maybe owes $50,000 of unsecured debt, is making $2,000 to $3,000 a month and we can very quickly see that they're not going to be able to pay this debt off in full unless, you know, they want to be on a 20 or 30 year payment plan. And we can deal with the debt in a much quicker way in a consumer proposal.

However, some of them are very reluctant to take that step because it's going to compromise their credit. When we actually dig deep and say well, what's your credit rating doing for you, why do you want it? Most of the time, people don’t have the view that a credit rating is a means to an end, whereas if the end is you want to qualify for a mortgage eventually, well you need the down payment and gee if you're in debt, you're not going to be able to save that down payment because you're creditors are going to have a claim on any savings that you make. So, I think people have a perception of credit rating as a be all, an end all of itself, and a lot of the discussions I have with individuals let's talk about why. Let's talk about why the credit is important to you, what it's going to do for you in life. 'Cause oftentimes the behaviours that you're taking, thinking that you're doing the right thing by preserving your credit rating, they're actually compromising your ability to achieve your financial goals like owning a house, retiring comfortably, all those great things we all want.

Doug Hoyes: Do you see that as well Bart, that people are really focused on their credit score, their credit rating to the exclusion of what Blair is saying are more important factors?

Bart Goth: Absolutely, almost everyone we speak with. They think the bank, well not the bank, the credit reporting agencies, they've assigned them this number and that tells them they're healthy. And so, if these experts have told them they're healthy, and they've got a positive credit rating, then why should they be worried?

Doug Hoyes: And we've done a couple of shows on that topic. And I'll put some links in the show notes over at hoyes.com of some of the things we've talked about.

And really, it's the opposite of what we think. Getting back to that word perception, well your perception is probably exactly wrong. If you have what you think is a really good credit score and as a result the credit card company keeps raising your limit, even though you didn’t ask them to, that's not really a good thing. Your credit score is not a measure of your worthiness as a human being, it's a measure for the bank to decide how much they want to lend to you. So, it's a marketing number for the bank. Your credit score exists for the lender, not for you. And so, I mean I agree with what both of you are saying, if you start focusing too much on that credit score, you're going to make bad decisions.

So, Blair give us some examples, then, you were kind of alluding to it in terms of how my decision making gets skewed when I'm thinking about maximizing my credit score as opposed to perhaps to more important things like, you know, dealing with the debt I've got. What are the issues that come up there?

Blair Mantin: Well, I think the best example is I see a lot of young families in Vancouver where the holy grail of anybody in Vancouver is to get into the real estate market. And, you know, it's been increasing by huge amounts these past few years and a lot of people think if I don’t get in now they'll never get in. So, I'll sit down with folks and they've got a lot of debt and, you know, their goal eventually is to get that mortgage, okay? But when we actually talk about well, what's your road map to getting to the down payment, they haven’t though that through, all they've been focusing on is, you know what? If I'm going to get a mortgage I need to have perfect credit. So, I've been really managing things, making all my payments overtime. I've got great credit, you know, my credit score is 700, 800, something like that, but they don’t have a dollar saved for the down payment. And the reason is, when I look at their monthly budget, so much of their income that should be going to savings is actually going to debt service each month.

So, the banks and credit card companies love them because they're giving them a 20% return to them on the money loaned to them each year most of the time. But the individuals themselves, what they thought they were doing by keeping perfect credit is getting themselves mortgage ready, but no mortgage company in this country will look at you unless you've got a significant down payment. And in a market like Vancouver, that's a very significant down payment.

So, oftentimes, and I really like to do this, is look at with the client over a five to ten year period and say okay, here's the plan here on and five years from now you're probably going to be very similar to where you are now. Let's look at a plan if you take a short-term hit to your credit, re-structure your debt to something that's reasonable that you can afford and then focus on savings as well, here's where you could be in the next five to ten years. And you could actually achieve that goal, whereas right now there's no hope of you getting there.

Doug Hoyes: So, you're saying you've got to focus a lot more on the actual dollars. If your goal is to buy a house and you've got to have a down payment, having what you perceive to be a great credit score isn’t going to do you any good if you've got a whole lot of debt. Now Bart, I assume you're seeing something a little bit different because when you and I spoke last year, I mean you were I believe the guest on show number 12 where we talked about the booming economy and how to deal with that; well obviously as we move through 2015 the Alberta economy cannot be called booming anymore. Did a lot of people fall into that trap of saying yep I've got to keep my credit score good, I've got to borrow as much as I can and now they're paying the price for it?

Bart Goth: Absolutely. I think we lead the country in levels of debt and have for years. And part of that is because they can quality for more with the higher incomes. But as soon as those higher incomes become reduced or sometimes become non-existent because of layoffs and those types of things, everything that they were directing their energy towards, everything they were focusing on building and keeping positive, is now going to come to a screeching halt. Because as they start to look at their cash flow and they start to realize that they have $70,000 of unsecured debt and the cost to service that unsecured debt, it could be more than the E.I cheque they're now getting because of the layoff.

Doug Hoyes: So, the person you're seeing coming into you now is it somebody who used to work in the oil industry and who's been laid off? Is it someone whose hours have been cut back? What's the typical profile?

Bart Goth: Right now we've started to see hours being cut back. There's a joint program essentially that's been done essentially with E.I out here. It's a relatively new program as far as I'm aware of, where it's almost a job share. They reduce the person's hours to a four day a week type scenario where they used to be working six days a week with all sorts of overtime. But then on the fifth day that they're not working now, E.I is kicking in for a portion of what they would have received if they did work. And that's in hope of course preserving cash flow from the corporate side, so they don’t have to lay off quite as many people.

Although I think this retraction or retrenchment in the oil prices is lasting longer than many had hoped. And so, I think we're starting to see the first wave of layoffs coming in. I think that wave will continue. I think we're really the front end of that wave if you will. But again, it all hinges on the economy and what's happening with resources out there. So, that could change tomorrow.

Doug Hoyes: So, back during the boom times, you know, a year, two, three ago, if I was some guy working in the oil patch, what kind of money could I be making?

Bart Goth: Oh, it's not uncommon for a guy who's dropped out of high school to find a job where he's bring in $100,000 or $125,000 a year.

Doug Hoyes: Cool. And that guy, I assume, used some of that money to finance a big truck, a house, consumer spending that kind of thing.

Bart Goth: Well, you need an F-350 with a lift kit. You need to have two quads, typically two snowmobiles as well. There's a typical picture of things that have been financed overtime, that are often lifestyle and the recreational type items that unfortunately are very common in that oil patch community.

Doug Hoyes: And so, you've got the financing on the big truck and the recreational vehicles and all the rest of it. And when you were making $125,000 a year you could service it, but now with your E.I cheque and a bit of work, you're making, you know, what 30 grand, 40 grand, something like that?

Bart Goth: A heck of a lot less, that's for sure.

Doug Hoyes: And it becomes pretty much impossible. Now so, I guess you've kind of proven the point then, yeah debt levels do matter. Even if interest rates are zero, if you're income dries up you can't service - well, I guess not zero, but anything higher than zero, you've still got interest payments to make and if you're income has collapsed then you just can't do it. Now out in Vancouver, Blair I assume you're not seeing a whole lot of people who are financing ATV's and things like that. But are you seeing a similar picture with people borrowing more than they can realistically hope to pay back?

Blair Mantin: Oh definitely, Doug. And we've seen it for several years. So, our firm's been around 25 years and, you know, each year we always wonder, okay is this the year when things are going to slow down, when people will get the message and filings are going to decline, and you know, every year it tends to go the opposite way.

I think the big issue in Vancouver and in B.C as a whole is there really isn’t the same industrial base as in other parts of the country; so in, you know, Alberta and Ontario manufacturing resources, so incomes in B.C are significantly lower compared to a much higher cost of living. So, you know, real estate is one thing that we've alluded to but even things like fuel I think is 20% more than you would pay in Ontario; consumer goods are significantly more expensive. But, you know, essentially wages they're either flat or they're even a little bit below the national average because a lot of people like to live in B.C and they're willing to accept slightly lower wages to do so.

So, a lot of the clients I see, there's no reason I can point to as to why they've gotten themselves into trouble. It's not necessarily there's been a job loss or a resource sector has shut down or things like that, a lot of the time it's there's been a gap between the cost of living and their income. They fill that gap with credit overtime and over a period of years with snowballing interest as well, it just gets to an unmanageable level.

Doug Hoyes: So, in the last minute we've got, I'll give you each 30 seconds to tell me well, what's your advice then for somebody who's got these massive levels of debt and their credit rating is perfect. They think everything is fine. Obviously you guys are saying no, that's not the case. I'll start with you Blair then, so what's your advice to those people.

Blair Mantin: I think the biggest piece of advice is to arm yourself with information and I really like the idea of doing two different five year plans. Do a five year plan where you're basically going to just do what you've always been doing and see where you end up and that's pretty easy to forecast. Do another five year plan where you take a short-term hit, you compromise your credit rating and you re-build it. People can go from a bankruptcy to getting a mortgage in as little as two to three years. So, really look at those two parallel streams and see where you might be better served, taking a short-term hit, to be more prosperous in the long-term.

Doug Hoyes: Excellent. Bart, what's your advice?

Bart Goth: The only thing I would add to what Blair said is: do it now. You need to sit back; you need to recognize the problem. Don’t focus on delinquency rates, focus on your total level of debt. And whether or not you're making headway, if you're not making headway in paying more than those minimums, you've got a problem and that problem's only going to get worse. And the sooner that you recognize that, the sooner that you arm yourself with information and determine how you can move forward, the more options you'll have.

Doug Hoyes: Fantastic. That's great advice, thanks both Blair and Bart for joining me today. We're going to take a quick break and I'll be back with my thoughts after this. You're listening to Debt Free in 30.

Doug Hoyes: It's time for the Let's Get Started segment here on Debt Free in 30 and today we're talking about debt levels and whether or not debt levels really matter. My guests are Blair Mantin from Vancouver and Barton Goth from Edmonton. And I want to focus in this segment on real estate value. So Blair, let's start with you. What's happening in the real estate market over the last few years up to where we are today?

Blair Mantin: Well, I'd say in simple terms it continues to defy any logic, any reasonable expectation for what evaluation should be in line with fundamentals. So, we've got a situation where the average income is maybe around $60,000 within Vancouver and the average house used to be just around a million, now it's around million and a half. So, it's just ridiculous in terms of the ratio of income to prices.

So, what's it's done is it's created a lot of hopelessness for individuals who think they'll never get into the market, which is unfortunate. But what I've seen, too, is I've seen people who - when a market goes up that much it really is difficult not to have financial prosperity if you've owned a house that long. But I've seen people who have used their house as an ATM, more or less. You know taking out home equity lines of credit over a period of time so the house might have been worth, you know, a million dollars and they paid $50,000 originally. But they've actually got no equity 'cause they just pulled everything out over time. So, it's actually a little bit sad.

Doug Hoyes: That's very scary. So, Bart you were a guest back on show number 12, we talked about managing money in a booming economy. That was last year, obviously the economy in Alberta, it's not booming anymore, it's taken quite a hit with the oil prices, as they've dropped all the way through 2015. What's happening with the real estate market both where you are in the Edmonton area and I guess farther up north in the oil patch itself, what are you seeing?

Bart Goth: There hasn’t been much of a change yet in the Edmonton area, at least according to statistics. We have seen an increase in the number of sales, so it's becoming more of a buyer's market if you will 'cause there's more options on the market. But it's new enough that it hasn’t really been adjusted or been reflected in the prices of those houses at this point.

However, northern Alberta, so if you get up into the prairie or Fort McMurray particularly, where there's been an immediate impact because of that oil crisis if you will, there's definitely a flood of houses on the market, there's definitely an inability to get anywhere near the prices that you used to be able to demand. And I expect it's a matter of time before that kind of floats southern to the rest of the province.

Doug Hoyes: So, what you're saying is there's a time lag associated with it. The oil price goes down, everybody doesn’t get laid off the first day, it takes a period of time. And even if you do get laid off or your hours get cut back, you figure well maybe it's going to come back; it's not like house prices crash immediately. It's more of a slow motion train wreck I guess. So, there's a lot of listings now and maybe not a lot of stuff is selling 'cause people still think their house is worth more. It's only when people actually start dropping the prices and are forced to sell when they start getting behind, is that kind of what you see as the end-game here?

Bart Goth: Absolutely.

Doug Hoyes: So, Blair you mentioned that real estate prices are crazy in Vancouver and I can't even do the math. If I'm making $60,000 a year, I don’t see who it's physically possible to buy a 1.5 million dollar house. And I guess that's what you're saying. So, you mentioned hopelessness. That if I'm, you know, 25, 35 years old, there's really no way I can ever get into the market. Is that what people are feeling?

Blair Mantin: That's exactly what people are feeling, that's the sentiment that they're vocalizing and I've seen a lot of young professionals actually leave Vancouver and head back oftentimes where they came from, Ontario or Eastern Canada mainly because the lifestyle they want, they could never afford in Vancouver. So, it's unfortunate, but it's also the case of single family homes, not everyone is going to be able to afford that, given the limited supply and geographic constraints of Vancouver and everything like that.

What I've seen too is there's been a huge explosion in the supply of non-single family homes, so townhouses and condos and things like that. And I think with anything, the market often swings too far and then has to correct. So, in many of my offices, that are outside of the Vancouver area, so in the Fraser Valley, Langley, Abbotsford, Chilliwack, things like that, I'm seeing a lot of foreclosures where people have purchased a house often at presale, or sorry, purchased a townhouse or condo often at presale and they find themselves underwater, that they can't sell the house of what it's worth as of now.

Doug Hoyes: So, same question as the first segment, what's your advice then to that guy who wants to buy a house? Is it just it ain't going to happen until the market corrects, Blair? What are you telling people?

Blair M:      Well, you got to be realistic, right? So, a lot of it is coming down to what is the financial plan? What can you realistically save in terms of a down payment? A lot of the time what's going to help people get into the market is this inter-generational transfer of wealth, which is essentially parents or grandparents helping you out with a deposit or helping you out transferring some of their home equity to yourself. Absent that, the average person is going to find it very difficult to get a single family home. However, getting a town home or a condo, that still could be a financially smart decision and it could give them a very good lifestyle. But they've got to be very careful right now with all the construction and supply. In my mind the market is really perched on a bit of a knife's edge and I would anticipate we're not going to see these continued increases; it can't go up 20% a year forever.

Doug Hoyes: So, Bart what's your advice for someone who's trying to get into the real estate market or maybe has a house already, what are you telling people?

Bart Goth: Well, I think if you bought a house you could afford from day one, you'll be fine. But if you're in a situation where your mortgage is very high and your income has not kept pace with the amount of debt you've exposed yourself to, you may want to sell that sooner than later. I think if you wait, I think there will be some type of correction that's felt across the province and things may be more difficult for you down the road.

Doug Hoyes: So, sometimes it's better to cut your losses. And a lot of those comments apply to the overheated real estate market in the Toronto area in Ontario as well.

Gentlemen, thank you so much for joining me. That was the Let's Get Started segment here on Debt Free in 30. I'll be back to wrap it up right after this.

Doug Hoyes: Welcome back it's time for the 30 second recap of what we discussed today. On today's show my guests Blair Mantin and Barton Goth disagreed with the prevailing wisdom that debt levels don’t matter, as long as you can make the monthly payments. They both made the point that debt levels do matter even when interest rates are low because if your income ever drops or interest rates increase, you won't be able to service your debt and that's a real problem. That's the 30 second recap of what we discussed today.

I think the most revealing point Blair and Bart made in today's show is that a significant number of people who go bankrupt or file a consumer proposal, do so even though they aren’t behind on their payments. They're making their minimum payments, so their credit score looks great, but they realize that they will eventually start falling behind and they want relief now. That's why delinquency rates are not a good predictor of bankruptcy rates because many people skip the delinquency period altogether. That's why the time to take action to deal with your debts is now, before your income drops or interest rates increase. Now is the time to take action.

That's our show for today. Full show notes are available on our website, including links to everything we discussed today. So, please go to our website at hoyes.com, that's h-o-y-e-s-dot-com for more information. Thanks for listening, until next week, I'm Doug Hoyes, that was Debt Free in 30.

About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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