Millennials set to face most economic pain in months ahead, RBC says. Here’s why - National | Globalnews.ca
Millennials set to face most economic pain in months ahead, RBC says. Here’s why - National | Globalnews.ca
Millennials who are saddled with debt such as costly mortgages might well bear the brunt of higher interest rates in the months to come, a new RBC report argues.
Older millennials, adults aged 35 to 44, had debt-to-disposable income ratios around 250 per cent in 2019, while Freestone noted that metric was roughly 150 per cent for the same age group in 1999.
Can confirm we're sitting around 250% but this is after exercising significant restraint to not take on as much mortgage as the banks would have given us. Everyone I know who bought over the last couple of years went all out and I can't imagine them being any lower than 300-350%.
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Fuck RBC and their predatory practices.
Oil companies are doing exactly that right now. Talking about how green they'll be in 2050 and asking you to take personal responsibility and please recycle. It's a load of bull as they lobby the government for more offshore drilling. We're so fucked.
I can't believe I'm going to defend the big banks, but are you suggesting they should keep unneeded staff on payroll if the company is profitable?
In short, yes. At the very least this would allow for better work-life balance for their employees. If that was any priority of theirs.
It isn't just mortgages. I read just a few days ago that the average price of a new car in Canada is $66k. I'm not sure I've spent that much on all of my vehicles combined since I bought my first car at 17. Add in other things bought on financing – lots of our friends have travel trailers, ATVs, and such.
People where I live regularly sell trucks on FB for 60-80K, and they are used with 100,000 km on them
I bought a 2017 tundra with 60,000k on it from a dealer for 40k this year. It’s not fancy and has few bells and whistles, but I can live with that at less than half the cost of newer ones.
I read just a few days ago that the average price of a new car in Canada is $66k.
And a good used bike is $150.
People, we need to start looking for alternatives that won't make rich people richer. Buy a *used *car if you must have a car, but don't keep filling the pockets of these greedy bastards by buying new.
I'm super into urbanism and love my bike, but unless there's good bike infrastructure in your area, you're risking your life. I know and keep riding anyways but most people aren't willing to take that risk. What we need to do is organize to push our governments to provide safe infrastructure for all road users.
Even my bikes are like 10k now...
Don't forget the cost of insurance, maintenance, fuel, etc. According to TechAltar it costs about half a million euros to own something like a VW Golf at the low end, 1.5M euros on the higher end. It's estimated that the average person spends 30-40% of their lifetime income on their car.
People only see the initial purchase price (which is often ignored because of various deferred payment offers that further increases the price), and the price of gas. Gas alone is starting to reach the price of renting an apartment, yet somehow people still can't see themselves living without a car.
Insane.
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I'm super confused, why is everyone bringing up such ridiculous car prices? Both Canada and the US have cheaper cars too. For example a KIA Rio (5 door) is around $17-23k new in Canada. It's $16k in the US.
Are Americans only considering massive SUVs when they talk about new car prices?
You are talking about least expensive, they were talking about average.
Where are you getting $17K from? According to Kia's website, they start at $19,933. And that's pretty much the cheapest new car in Canada. That's way out of reach for many people, and the used market is insane.
Earlier this year, my 2005 Civic with 301,000km was totaled. I bought it in 2013 for $5,000 with 121,000km. From my research, if I had sold it before it was totalled, I probably could have gotten more than $5,000 for it, even with the extra decade and 180,000km.
It's getting hard to find cars period. I forget where I read this stat, it was only in the last day or two too, but the number of cars being made, and sold for under $30k, it's like a small handful of models in total. And good luck actually finding many of said models on local lots, the factory production numbers of these cheaper models is super low.
Also you drove by a Kia lot lately? I ride by one near us fairly regularly on my road bike, and that lot is sparse. The only vehicles on it are SUVs, and there isn't even very many of them. So yeah the internet says the Kia Rio is $17k, but can you actually get one in your hands for that?! I mean sure, maybe one or two. But remember, we are talking averages here, for the whole marketplace.
$60k average price is definitely in line with the observations I've been able to make, and it definitely reflects the laneways on my block. You are right, monster trucks and SUVs, but that reflects the current market. I'm the only person on my block that only has cars in their garage.
Some people have good incomes, but cannot anymore changes houses every 5 years because it's out of control, for the price and interest rates, so they use their income to buy cars/RV.
Also some are leasing even if it's like 800$/month just to show their car, I know people who lease big Volvo, Porsche, etc.
Me I keep my 10yo Sonata, and if it dies/crashes, I don't think I'll be able to buy anything more than 15k :-/ What's available for 15k ? a 2006 Sunfire?
True. I don't own a car so this completely escaped me.
Oh look, things are getting worse again. I'm just numb to it at this point, it's all I've ever really known.
I'm already in so much physical pain, might as well lump economic pain in there as well...
This is actually a choice. The rich have decided that millennials will suffer so they don't have to. We outnumber them.
☝️☝️☝️☝️
(Seriously sorry for dumb question) What does that mean for us?
Depends on where you are financially. If you have a fixed rate mortgage that is getting renewed in the next year or two - you'll see a big jump in payments if you aren't able to extend your mortgage.
If you're still on variable, no real change.
If you're renting, rents will continue to climb if interest rates go up or plateau - but don't ever expect prices to come back down, if you're lucky they'll stagnate for a year but that's unlikely because landlords are greedy shits.
Businesses are cutting jobs as there's less money in the market (all going to shelter and food plus general Greed of making less people do the same/more as a larger group), so if you're unfortunate enough to have a mortgage that's renewing soon and you lose your job and EI can't cover the difference, you'll probably have to sell or lose your home... And still be unable to afford rent.
This has been the goal of every level of government for a while, municipalities refused density, provinces refused to prioritize any public housing (Doug in Ontario is sitting on 22 Billion as education, healthcare, and housing are floundering, so he gifts developers billions in prime Greenbelt lands for single detached millionaire homes) and the Feds can't really do much with provincial and municipal governments running interference - aside from use their own central banks to get essentially interest free loans and build federal public housing. Which they should but certainly aren't.
Oh, and the Bank of Canada is crushing developers with interest rates so they're cancelling or pausing projects because they're unprofitable with these interests rates - or they're colluding and holding us over a barrel because our government cannot successfully accomplish anything without overpaying a private business who underpay their workers to do it for them.
If you keep your job and bought a home within your means, it'll be lean times but not impossible to overcome. Don't be afraid to use food banks or anything to keep yourself afloat. Times are tough af and there is little relief on the horizon.
This really helps me understand the situation better. I appreciate the time and thought put into this response. It's times like these I am thankful I didn't overspend. I listened to my parents and bought a house that wasn't flashy but was suitable for my situation. Most people I know did not do that, and I constantly wonder how they are making ends meet. Some of them make less than I do.
If you are still on variable, no real change
Au contraire. It would blow your mind how many people are on these bullshit fixed payment variable mortgages. There's people that unknowingly have these weird scenarios like effectively 60+ year amortizations now, due to the sharp increase of interest this past little while and the fact their payments haven't even been covering their interest for some time, let alone the principal. The banks won't actually spill the numbers as to how many of these types of mortgages there are, but thats all banks peddled the past decade.
I renew next year on a fixed mortgage. To be fair, I've also known that this has been a loooooooong time coming, and hence didn't overspend when we bought in 2019. The pressure sure as fuck was there, the realtors like you can afford way more, the mortgage people were like spend spend spend. Even our boomer parents, who don't live under any sort of modern economic reality, were trying to push us towards the bloated mcmansion end of the spectrum, market never goes down, maximize, blah blah blah.
Anyone with half a brain had to have known this was coming. I'm actually for real surprised it took this long. While nobody could have forseen COVID, or the super sharp inflationary spike that resulted, even as far back in 2019 I suspected inflation and higher rates were soon going to be creeping in. It wasn't rocket science. While I didn't exactly predict >7% interest, at the same time I honestly had 0% expectation I'd be renewing for the one point whatever our current mortgage is at.
In fact, I'm doom and gloom on our country as a whole. I think we've been glutenous little piggies for far too long, and the central banks have already gone way too far overboard trying to get to their imaginary little targets. I think they've already popped the bubble, and we just won't know this for sure until defaults start to really spike by Q3 2024. Anyone in Toronto or Vancouver renewing on these bullshit fixed payment plans maybe is just going to walk away, it's probably going to be too much payment and amortization to overcome in some of these overheated markets, against rapidly declining values. Toronto and Vancouver have already flattened out, which might be indicating a large correction on the horizon. Rentals are going to spike, already have in most markets, and that's going to push all the renters out. Basically I think it's going to be a fucking disaster. Hope I'm totally wrong, but I'm not 100% sure I am just yet.
We need McMansions in the greenbelt to solve housing!!!! /s
The way I understand it, there are two main implications. First, the higher the debt load, the less people will spend in a rising interest environment. As their (our) mortgage payments go up, we'll spend less on anything else. The larger the effect, the more significant it is for the rest of the economy. Second, the higher the load, the more people will default or sell in a rising interest environment. The consequences of this one are more varied.
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Everyone lost their fucking minds and went on bidding spree to buy a house, now the chickens are coming home to roost. I doubt government will be bailing any of these "home owners"
They will those provide financial firms with liquidity so bag holders have someone to sell at a loss.
Kind of hard to blame the victims here when it's not their fault successive Canadian gov'ts failed to stop illegal money coming into Canada in the 90's -- which, once washed through BC casinos, went straight into property purchases that started the housing bubble we're in now.
If we assume people are capable of making rational decisions and participate in a free market, then they absolutely are to blame for taking on ridiculous debt loads. If we assume the opposite, then their actions were the product of the environment. We seem to want to have it both ways. We want people to be free to do whatever they want without (government) intervention when the number's going up. For example people were really opposed to the introduction of the mortgage stess test. On the other hand we want to absolve people from responsibility and defer to the environment when the number is going down and they're suffering post their earlier decisions. "Why didn't someone do something about X, Y or Z which we perceive is the reason of our suffering."
Personally I do think people's actions are a lot more a product of the environment than anything else. If you ask me, most people shouldn't need to participate in asset markets to have a place to live or have income during retirement. They simply can't compete. But many fellow Canadians don't feel this way, especially when the number goes up. And so we are where we are. 🥲
They did this trick in america in 2000s, Canada mostly avoided that fuxkenin
Looks like they are gonna get y'all now.
Buying into a bubble doesn't make people a victim. Risk was taken and those who were not properly prepared will be fucked.
This is a classic FAFO situation.
With that being said, yeah, big picture all working people getting fucked.
I think the government has been whispering to banks to extend amortizations on variable mortgages. They could play with amortizations of distressed fixed mortgages too upon renewal. Keep people in their properties, paying only interest?
The banks have started doing "infinity mortgages", in which the lendee only pays the interest and never the principle because of how the interest rats have gone. CTV News did a little primer on infinity mortgages,
When you boil an infinity mortgage down, it sounds like renting since there is no prospect of paying off the principal. Are infinity mortgages here to stay? I don't know, I do know I won't have shocked pickachu face when they stay a fixture of the Canadian mortgage market.
I'm not sure it's a mistake, tbh. It was a shit sandwich any way you sliced it.
Rentals are being sold out from under people often enough that renting anything privately owned is an eviction lottery.
There are no 3BR apartments available, so families mostly want houses, which are largely privately owned.
At the time, mortgages were cheaper than rent, and interest rates had been dropping fairly steadily for 40 years. We can look back with hindsight and say people should have predicted interest rates quadrupling, but I don't think that's fair.
Sure, people should have known rates would go up, but that's what the extra qualification "stress test" was for, right? (Or, I image something like that was a common refrain.)
I'm house poor and overextended, personally, but I'm fortunate enough to be able to work more than full time to pay it. It sucks, but it's still better than being forced to move my kiddos 4 times in 5 years, like my friend.
Maybe this house will be worth half what we bought it for in a few years, but we gotta live somewhere, and the stability of owning is worth quite a bit.
So 800% is bad, right? Thing is, we secured the debt at 1% over 30 years, so it’s not hard to service. Thanks to inflation we’re basically being paid to have the loan. I think mortgage debt is in a very different bucket to other kinds of debt.
Are you in Canada? If so, who lends mortgages with a 30 year term?
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They're talking debt-to-disposable income ratio, which ChatGPT tells me means "Debt over in income after tax." I don't think this is necessarily descriptive of someone's financial situation. I'm over 400% debt-to-disposable income, but I could pay off my mortgage in a week if that made financial sense.
If you've got investments returning more than your loan rate costs you, I don't know why you'd pay down your loan any sooner than you had to.
Do you think your situation is similar to the average Canadian household?
You are not the norm.