One of the principles of Simple Living is managing your money wisely: consumer debt is a drain on your freedom, living within your means is a valuable skill, and managing your savings wisely allows you to plan on a secure future. For many people their biggest investment is a home, and recent upheavals in the real estate market are throwing them for a loop. Combine that with the rapidly rising fuel costs (we just paid $100 to fill our tank the other day) and things are looking bleak.
Here in Vancouver we’re at the peak of a five year housing boom that has seen prices double in a few short years. However, with things down South having gone south economically speaking, and things in Eastern Canada looking less than positive (Ontario as a “have not” province?) people here on the West Coast are asking “can it happen to us”?
For those of you who don’t frequent BC real estate blogs and discussion boards you may not be aware that there is “a party going on in the blogosphere” [recent comment left on a local housing market blog]. The number of active listings have been climbing precipitously in the past two months while sales have slowed, and this during a time of year when the market is usually most active. In cyberspace, champagne bottles were placed in the ice bucket when we surpassed 18,000 active listings and folks are getting ready to pop the corks when we hit 19,000 – predicted to happen before the end of June. So who are these twisted cyberpals ready to celebrate at what will likely be a very painful period of adjustment? They are the Bears, and they have been predicting that this bubble would come to a burst for the last couple of years now.
In reading through the discussions I have found that sentiments among the Bears are similar to those among the APpLeS. Tough times are ahead, and many people who have been living unsustainably – be that financially or environmentally – are going to suffer. However, those who have been preparing for this day will weather the storm and hopefully stand as an example. When we pick our selves up from the collective dust, many hope that values such as frugality, self-reliance, and “making do” will finally be embraced again and brought back into the collective consciousness.
A recent article in our local paper reported that Canadians are “up to their necks in debt“. Sadly, many are in this pickle because they bought into the real estate hype of “buy now or be priced out forever” and vastly overextended themselves to buy a home. Forty year amortizations coupled with low down payments and low interest rates leave little wiggle room for slowdowns in the economy. Home equity loans have proliferated like rabbits as housing assessments shot to the moon – what some people may not have appreciated is that you must repay those loans, even if the value of your home subsequently falls. And what did they take out these home equity loans for? Was it to feed the children? No, most of them went to home renovations, high priced consumer goods, and the purchase of second properties (vacation or investment). Frankly, I can’t understand the point of borrowing against one’s house – seems too much like robbing Peter to buy Paul a big-screen TV. It’s so bad that the government is suggesting they mandate saving (isn’t that what an RRSP is for?), and outlaw the 40 year amortization (a recent “consumer option” which is, IMHO, like handing out crack to babies).
It’s pretty embarrassing when we need the government to save us from our own ignorance. Why can’t they just teach this stuff in school?
For our family, a downturn in the market is just what we need. Our savings has grown signficantly this year due to our efforts to be frugal and forgo extraneous purchases, and we are a few months away from being completely debt free. At this rate our dream acreage will likely come at a big discount. Environmentally speaking we’re taking steps towards self-sufficiency and we’re in a good position to weather the current fuel crisis: Husband enjoys a short commute to work by transit and everything we need is relatively close to home. With no day job for me and no school for the kids we have choices as to how often we use our car.
But alot of other people are definitely going to get hurt. Those who stretched their budget to the limit so they could buy a house in the ‘burbs are already suffering at the pumps (I can’t even imagine how much this is costing folks who commute an hour each way to work every day). If the value of their home drops some may find themselves in an upside down mortgage – unable to sell because they owe more than they will get for their home (even with the kitchen reno and home theatre they bought on credit to “increase the value of their home”).
In terms of our society as a whole, however, I breathe a sigh of relief. Maybe people will learn a lesson from all this. Then again, maybe not. The Great Depression and two World Wars happened to people who already understood the value of a penny saved, who could make do for themselves, and who appreciated the slippery slope of debt. The pending economic storm (which some in the US are wading hip-deep in already) is going to rain down on a generation of folks like myself (not too long ago), who weigh all purchases in terms of the monthly payment and want it all Now. If any good comes of this – and I think it will – here’s hoping the lesson lasts this time.