Experience is my teacher
January 31, 2009
– Comments (8)
We all have different experiences to which our outlook comes from and my economic outlook comes from living in Vancouver which, in my view, was a mini example of what happens when you have housing bubbles.
Vancouver's housing prices were close to tripling from 1986 to 1993. There had been another harmful bubble in 1980/81 and certainly housing was exceptionally cheap in 1986 as there had been a fear of buying. Quite a few had been hurt by the 80/81 bubble. Vancouver has been Canada's most expensive city since the 93 bubble, and I'd say housing has been about 20% more expensive then say Toronto ever since.
What we saw in Vancouver was a huge division of wealth and lifestyle as a result of the housing bubble. People that I know that managed to own their homes prior to that bubble have had good lifestyles. They have managed vacations, to provide for their families, save for retirement, keep in reasonably new vehicles and enjoy many of the toys that are out there.
In Vancouver the cost of housing took lifestyle away from all generations since, and I see this playing out in a much bigger scale as there were many more housing bubbles in many more places. To my household that housing bubble meant there was $10-20k per year less to spend elsewhere for the entire 14 years I was a home owner.
I was taught that wages go up and your mortgage becomes more manageable. That wasn't true in my household. Our household wages were almost flat the whole time. Indeed, 1991 was our year for highest household income until I left Vancouver and took a job up north. Wages weren't completely flat, well, they were up and down. An up year was completely unreliable that it would be good again the following year. But never did they match the peak until I left Vancouver.
This is what my experience taught me and unfortunately, I think it will be the new reality for many in the younger generations. Who knows, they might luck out and eventually see an inflation that makes debt loads manageable and in balance with lifestyle, but it may also be what I saw, price inflation with flat wages. Early we saved for retirement. Our last five years of homeownership we stopped saving for retirement, opting to try and pay down debt instead.
I think the economy is going to be rough for a while because of the number of people that will be lacking in disposible income because of household debt. I think if you take the increase in the amount of money going to mortgage servicing and consider that it is not available to stimulate the economy, well, this is going to be a major slug to the economy for years.
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