Best get your fi­nan­cial house in or­der

The Compass - - Editorial - Rus­sell Wanger­sky Eastern Pas­sages Rus­sell Wanger­sky’s col­umn ap­pears in 30 SaltWire news­pa­pers and web­sites in At­lantic Canada. He can be reached at rwanger@thetele­gram.com — Twit­ter: @wanger­sky.

You hear it in the dis­tance, like the rum­ble of thun­der when you re­ally, re­ally don’t want rain.

But thun­der­storms aren’t al­ways big, and you can hope that its track is mov­ing in a dif­fer­ent di­rec­tion, that it will miss you, that it’s all sound, but no fury.

This week, there are rum­blings on the fi­nan­cial mar­kets that sug­gest a dif­fer­ent sort of storm is com­ing, though it didn’t ar­rive this week.

It’s got to do with in­ter­est rates and debt — and some of us are car­ry­ing a truly re­mark­able amount of the lat­ter.

A re­alty lawyer I know told me about his frus­tra­tion deal­ing with home­buy­ers in­tent on buy­ing the big­gest house they can get, re­gard­less of what they can af­ford. “You ask them how much they put aside ev­ery month for emer­gen­cies, and all you get back is a blank stare.”

Easy capital has meant many of us have got­ten a lit­tle bit — or a lot — flabby in the fi­nance depart­ment. It’s not only in­di­vid­ual Cana­di­ans — pro­vin­cial and fed­eral gov­ern­ments have gone on the train, too, com­fort­able in run­ning up big deficits be­cause in­ter­est rates aren’t in the same range they were that last time the feds and the provinces put the brakes on and de­cided they had to bring down long-term debt that was eat­ing up more and more rev­enue ev­ery year.

Since 2009, the Bank of Canada rate has been at or be­low one per cent — that’s an eter­nity of cheap money. It con­tin­ued that po­si­tion on Wed­nes­day, hold­ing the rate steady be­cause lower food prices in most parts of the coun­try helped hold down in­fla­tion rates.

The big­gest group at risk, if the Bank of Canada should change its plans? Prob­a­bly mil­len­ni­als, who owe more money than pre­vi­ous gen­er­a­tions, with 29 per cent of that group sad­dled with more than a quar­ter of a mil­lion dol­lars in debt and al­ready hav­ing to get used to the new world of pre­car­i­ous em­ploy­ment.

We’ve been lucky that cheap credit has lasted this long. It can’t go on for­ever.

The ques­tion now is how the even­tual change in rates will af­fect things like home own­er­ship, es­pe­cially in the wildly dif­fer­ent sit­u­a­tions be­tween, say, over­heated re­alty mar­kets in Toronto and a dis­tinctly dis­sim­i­lar prob­lem in ru­ral parts of At­lantic Canada.

One thing is for sure: ac­cord­ing to a sur­vey by Man­ulife Bank this week, 52 per cent of Cana­di­ans say they don’t have the fi­nan­cial room to han­dle an in­crease in in­ter­est rates. And that’s hap­pen­ing even as the av­er­age amount of mort­gage debt held across the coun­try rose by a whop­ping 11 per cent in a sin­gle year to more than $200,000.

The ugly part is that the pos­si­ble fall­out could hit the thrifty and the spendthrifts at the same time; those with no room to pay ad­di­tional costs would have to sell and lower prices, and lower house prices would re­duce the eq­uity held by those who played every­thing a lit­tle bit more safely.

I guess I’m skit­tish be­cause I re­mem­ber what it was like to have a mort­gage where I was pay­ing 11 per cent in­ter­est. I’m not sug­gest­ing that kind of rate hike is about to re­turn — far from it. And maybe I’m just be­ing like one set of my grand­par­ents — skit­tish after liv­ing through bank fail­ures, they felt safer hid­ing money all over their house to avoid a com­plete bank col­lapse that never came.

Cheap loans can’t last for­ever.

The smarter ones among us will be ready for that — or at least, will leave some cush­ion in our monthly ac­counts to ab­sorb what has to hap­pen.

Storms al­ways come. You can plan for that — you just can’t al­ways plan on when they’ll ar­rive.

“We’ve been lucky that cheap credit has lasted this long. It can’t go on for­ever.”

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