BC Business
Vancouver Real EstateThe ride may be over for B.C. and Vancouver real esate millionaires.
Economists are warning that the era of low interest rates are over and our household debt levels are unsustainable – but in real-estate crazy B.C., we’re not listening. In 2009, Canada had 251,300 officially listed high-net-worth individuals (millionaires, to us common folks). These are people whose assets minus their debts amounts to more than 1 million dollars.
In 2009, Canada had 251,300 officially listed high-net-worth individuals (millionaires, to us common folks). These are people whose assets minus their debts amounts to more than 1 million dollars.
My guess is that by the end of 2010, that will have risen considerably. Another guess is that a sizable chunk of millionaire’s row lies in B.C., specifically Vancouver.
Really, anyone who owns a house in the city is close to millionaire territory, assuming they’ve had it for a while and have managed to pay most of it off. If they’ve been prudent about the rest of their finances – I know, that’s a big if – they’re probably paper millionaires.
For example, anyone who has had a good union or government job for more than a decade is probably sitting pretty in millionaire country. Simply having a house and a powerful pension plan almost guarantees that.
Yet we have just heard dire warnings that our household debt in this country is becoming unmanageable. Authorities are shaking their fingers at us about our proclivities to max out our credit cards to buy trinkets.
“Cheap money is not a long-term growth strategy,” thundered Bank of Canada governor Mark Carney. “Low rates today do not necessarily mean low rates tomorrow.”
Clearly, Carney wasn’t talking about credit cards. Certainly they are not low-rate, often carrying interest rate tags in the 19 per cent range. Maybe he doesn’t use them and so doesn’t have a clue what the ordinary schmoe on the street faces daily, or he was talking about something else completely.
I think it’s the latter. Like many others, Carney was probably referring to Canadians’ home-buying binge of recent years. Mortgage debt is included in household debt, the evil monster whom Carney is trying to slay. And, apparently our household debt is now 148 per cent of our disposable income.
Okay, big debt is a bad thing. But maybe that debt is there for a reason and Canadians aren’t quite as dumb as the authorities believe. For example, as BMO Capital Markets deputy chief economist Douglas Porter points out, some financial assets have also increased considerably in recent years.
Equities are up, and Canadians are actually saving again, he says. To that I’ll add that home prices have levelled off or decreased throughout most of the country, so asset deflation has been taken into the equation.
So what has all this to do with Vancouver, where everyone tends to put their millionaire bets on the real estate horse?
It’s the last point that matters. As we said, home prices have decreased or leveled off throughout the country. Except in Vancouver where we just assume it will keep going up forever. Sure, maybe more slowly, but still up.
But we don’t live in a protective suit of armour, even though many of us think we do. Prices have to level off eventually. More than likely, they’ll decrease – what goes up the highest has the farthest to fall.
Also, we tend to avoid diversifying our investments in such things as equities. Instead we prefer to throw most of our money into real estate.
This means that asset deflation, in the form of falling home values, is likely in our future.
And that’s going to put a pretty big crimp in a lot of Vancouverites’ million-dollar dreams.