[interested]

PinkLucy you may be right.
I would think however there are estimates out there of how much of the population in Canada would have a net worth of 1,10 and 30 million.
Not as sure that we will be able to get the second part of the number; how much of that is due to R/E.
I am wondering about this as I wonder for this group how many would fall out of their status as comfortabel, wealthy and uber wealthy and the potential effects on the economy as a whole.

 

[CN Tower]

Canada's Richest 1%

http://www.policyalternatives.ca/publications/reports/rise-canadas-richest-1

 

[PinkLucy]

Yes, we can track income, as that report does, but interested was asking about net worth -- two different measures of wealth.

 

[interested]

You stole my thunder PinkLucy but I still appreciate CNTower trying to give me data.

Perhaps CNTower you have another suggestion on how to find out about the net worth. While income is interesting, it does not help me in trying to establish what percentage of the wealth of people with some affluence have in housing.

I realize that in the event of a bubble, it is unlikely that these are the individuals who will most suffer, more rather the lady like the one from the financial times severely overextended that was posted yesterday, but I am just wondering when one reads about the affluent how much of their worth is derived from R/E and correspondingly what one would expect in the event of a real implosion of the market. Since this group has much more discretionary income, it would surely have a major impact on the economy.

This is in no way to take away from the effect that it will have should an implosion occur from those less affluent and of lesser means.

Just curiousity on my part. I am wondering if we can make some inferences based on facts. I appreciate that one can logically predict just looking at our neighbours to the South what can happen. It is the scale that I am trying to get a grasp on.

 

[Eug]

All that stuff about financier compensation reminded me about an acquaintance that called me after the holidays. That person was only a couple of years out of school, and was making an OK salary for the level of experience, but was promised double the salary after the bonus. That person took it to mean the bonus would be double the salary and when it was discovered `only`to be equivalent to the salary (thereby doubling the yearly compensation), that person freaked and called me to bitch and moan. I just laughed and told that person not to phone anyone else with that complaint, because NOBODY would have any sympathy.

P.S. They would work long hours, and as support they would get free dinners. So I asked what did they provide. I was expecting decently catered food, mixed in with occasional take out Chinese or sandwiches or stuff. Nope. They would order take out from the top restaurants in Toronto and then bill it to the client.

 

[daveto]

I have a question for those on this forum. Not sure if this is the right place to ask it.

Does anyone know where one can find recent stats on the number of Canadians who have a net worth of over $1million investable assets, those considered wealthy (I believe that is $10million now) and the uber wealthy ($30 million of investable assets). I wonder what percentage of the population falls into this category. My next question is if someone knows this, do they also know how much, what percentage of wealth of these 3 groups is tied up in Real estate?

Thank you.

Here is a Stats Can table on the top 20% by assets. Noting that the investable assets for this group are quite a bit below $1m

Top Quintile Family Unit Median Net Assets are $862k, with approx 30% in RE
http://www40.statcan.gc.ca/l01/cst01/famil116f-eng.htm

 

[PinkLucy]

I guess that was reported on the census? I don't remember ever reporting that level of detail -- perhaps it was just the long form? I know that I have always completed the census -- maybe I don't remember what I reported

 

[interested]

Exactly my point when I referred to entitlement.

I can tell you that as a self employed individual, I often worked long hours until the early evening from the early morning, often eating a sandwich at my desk or having dinner at home at 9:30 p.m. No question of "doubling my compensation". Question of getting the work that needed to be done done.

As you point out Eug, to me a bonus was supposed to be an incentive to encourage and reward a good job. The bonus has become totally out of hand. The best example I recall was a neighbour of mine who was a mid/upper Nortel Manager who told me in the late 1990's that his salary was irrelevant. I don't know what it was but I believe in the neighbourhood of $150K/year. His bonus was 5-6 times his salary. Everyone in his department were millionaires according to him. As I said to him then and I believe now, and I do not wish to compare this to all the lower level Nortel employees who got burned with the events,( let alone the investors myself included who took a bath ), it was ridiculous that he receive bonuses in that range, and furthermore, if he left tomorrow, would it make any difference to Nortel. Answer... NO. And if he worked at ABC company next door, did the same hours and work, and they did not have the Nortel name behind them, and it did not skyrocket in value, would he think it was fair he got no bonus? Equally ridiculous.

I feel bonuses should be a reward to recognize and support people who do a good job. Salaries should be reasonable, and bonuses probably in the range of 2-8 weeks of salary, 6 months in case of extremely good performance and not viewed as an inherent right. What those working in these scenarios I think forget is that the shareholders because there are so many and no one is answering to an individual owner, have the advantage of compensation schemes that no one running a small business enterprise would accept or tolerate.

The only exception to this rule above off the top of my head would be commissioned sales people who are paid minimal salary and their pay is the commission. Not someone making $100,000 and expecting as a given that the bonus should be another $100 or $200,000. And please for those who respond, this is in no way to say that you are not working hard for your compensation. You are, but the compensation is out of wack, that's all.

 

[interested]

Thanks daveto.
At least that gives the top quintile and as you say, 30% in R/E. So a 30% drop would result in a 10% drop in Net worth at least for this group.
I would think this group could withstand that quite easily.

I realize it is the group at the lower end that will have the greater problems. Also, this data is from 2005 and I believe that net assets are up quite a bit from these values. So probably 1/5 of Canadian families at the top have over $1million net worth.

I guess the next thing would be to look at the 2nd to 4th quintiles since we have 70% home ownership and see how well that group as a function of net worth and debt carried would survive.

 

[interested]

Looking at the data (again 2005 Average home in 2005 was $100K, with mortgage of $88,000 or 12% equity. Total net worth $37K. So, huge problem for the 20-40% group. Again, assuming the 1/2 that owns a home is in the 30-40% group, maybe a bit more equity but that is a total guess. This group would not qualify for conventional mortgage even now.
the 3rd quartile: 40-60%: 144K average home price: 91Kmortgage. Total Net worth $148K. So even assuming a 30% decline from 2005 values, the mortgages would be above water but this group would have most of their equity wiped out and only about 10-15% equity left, not enough for a non CMHC insured mortgage.
the 4th quartiel: 60-80% group: $200K average home price: 100K mortgage. Total Net worth $361K. So assuming a 30% decline, this group would qualify for a conventional mortgage, assuming 30% price declines.

So, using 2005 data, 30% would have to refinance if possible with CMHC insurance and 10% the bottom quartile could not refinance as no equity left in the home. Note the denominator here is 70% so these numbers are considerably worse (almost 50% higher).

Now, of course markets are regional and I get that, but it suggests to me that Paper Chopper may well be correct when he says and quotes from Carney "that it will be Brutal".

Perhaps some of you could comment on this analysis. Maybe I am reading the data wrong or being too simplistic with it.
Thanks

 

[CN Tower]

Thanks daveto.
At least that gives the top quintile and as you say, 30% in R/E. So a 30% drop would result in a 10% drop in Net worth at least for this group.
I would think this group could withstand that quite easily.

I realize it is the group at the lower end that will have the greater problems. Also, this data is from 2005 and I believe that net assets are up quite a bit from these values. So probably 1/5 of Canadian families at the top have over $1million net worth.

I guess the next thing would be to look at the 2nd to 4th quintiles since we have 70% home ownership and see how well that group as a function of net worth and debt carried would survive.

Interested, my advice FWIW is to not obsess about things beyond your control. If you can absorb the worst case scenario, ie a calamitous 30% drop in GTA housing prices across the board- then don't worry about it.

As far as bonuses go, I don't count other people's money, make $20!M or $200MM/yr, matters not me. It's the Board and shareholder's issue and problem. What I don't agree with however is bailouts of thee kind of financial companies where the bailout funds end up directed primarily towards the bonus pool as we saw in the US. I also don't think our Federal goby should have backdoor bailed out our banks by buying all their mortgages that couldn't clear the system when the securitized lending market froze. The banks should have absorbed the losses. Similarly, we should not have bailed out the auto companies. It is a mammoth moral hazard.

 

[interested]

First: one clarification CN Tower,
I don't obsess about this situation for me. I can withstand the market going down 50%. Not that I would like that. I was just trying to understand the broader implications in my own mind.

As for the other people's money, it is not other peoples in fairness CN tower. It is the shareholders, so if you own stock, you are one of them, the taxpayers, I assume you pay taxes so your money, and government bailouts which again is the taxpayers money so effectively your or my money. Are we getting good value for our money?

I agree I could not care less what other people make individually. However as a society, I really think we need to ponder the greater good and I have to wonder what possible greater good is being served when someone basically through legal theft pockets salaries in the multimillions of dollars. You are not going to suggest to me that you seriously believe that there is a correlation between what is being done and the compensation.

As for the bailouts. We could argue but I would suggest that the same people getting the bailouts for the banks basically brought the system to the brink of absolute disaster. So unfortunately, bailouts had to occur. There were concerns, rightly or wrongly, that the whole financial system as we know it was on the border of collapse within hours or days. Perhaps that is not the case, I can't tell but that appears to be what was happening. There is definately a moral hazard but the reality is the people who were responsible not only were not punished but in fact took multimillion dollar bonuses because it was promised before. The government and people of influence took advantage of the taxpayers and robbed them of close to a trillion dollars and there may be even more with the QE1 and QE2. We shall see if the taxpayer gets the money back let alone makes any profit on assuming the risk. What we do know is those responsible for the problem were and continue to be amply rewarded and whats worse, have a feeling of entitlement and accept little or no wrongdoing on their part.

As for auto companies; this was simply was a matter of too many jobs to be lost and political motivation to not have the 8 or so downstream jobs lost if the car companies closed. Does it make sense to spend over a $1million dollars/worker to save each job. You be the judge. From my view, it was ridiculous. Again a reflection of vested interests, powerful unions, and the taxpayer again on the line for companies and individuals, many highly paid, who again not only were not punished but rewarded or given golden parachutes the likes of which most of us could dream of. And this in some cases for essentially bankrupting the company.

It is interesting CN Tower that just 20 years ago, a million dollar salary was almost unheard of unless you were the CEO of a Fortune 500 company and then you probably barely got there. Now there is upper/middle management getting there with bonuses and stock options. At some point, whether we chose to or not, society as a whole will have to ask itself: Is 32% of all the US Wealth held in the top 1% reasonable? Is 50% held by 2% reasonable? And is 65% held by the top 10% reasonable or good for societal stability. Usually the type of things that in the past has led to revolutions and wars. So, in the greater picture, yes I believe what is happening is not only my but your and everyone elses business.

This is not that I envy the guy making millions. I have been very blessed and am verry happy with my lot in life. There is always a nicer home, nicer car, nicer hotel, fancier restaurant. Do I miss any of it. Not one bit. Frankly, material things stopped having much value for me over a decade ago. I scarely shop. I buy investments but that is different.

I think with people starving, 20% of the population at the poverty line, yes millions of bonuses is not right, not only morally but because in most cases in my view it is unjustifiable.

 

[daveto]

Looking at the data (again 2005 So, using 2005 data, 30% would have to refinance if possible with CMHC insurance and 10% the bottom quartile could not refinance as no equity left in the home. Note the denominator here is 70% so these numbers are considerably worse (almost 50% higher).

Now, of course markets are regional and I get that, but it suggests to me that Paper Chopper may well be correct when he says and quotes from Carney "that it will be Brutal".

Perhaps some of you could comment on this analysis. Maybe I am reading the data wrong or being too simplistic with it.
Thanks

My understanding is that if the resale value of a CMHC insured house declines such that the equity is zero or less, then then homeowner & lender still receive the protection of the original CMHC even at the the time of renewal. Thus, in this scenario, the homeowner will likely be forced to stays with the original lender at the time of renewal, and they will not be able to benefit from seeking more competitive offers from other lenders.

There may be some owners who have property without CMHC insurance, and might end up below water at the time of renewal. And they would find themselves in an awkward position.

In the big picture, I think it is important to remember that many people have grown accustomed to RE price increases 2-4% (or more) above the rate of inflation. This growth in their asset value informs their spending habits. Faced with even flat price changes, let alone 3-5 years of slight decrease (which can grow to a total of 10%-25% or more), I think this would have a huge effect on spending habits and the overall economy. In other words, exactly what is happening in many countries around the world (Ireland, US, Spain, etc). When combined with the decrease in the housing sector economic activity, the effect is dramatic.

Maybe Canada will dodge this, perhaps due to our natural resources or the legendary "foreign investors"?. Maybe. Time will tell.

 

[Eug]

In the big picture, I think it is important to remember that many people have grown accustomed to RE price increases 2-4% (or more) above the rate of inflation. This growth in their asset value informs their spending habits.

Why do you say that?

In my very limited and anecdotal experience, their spending habits are more guided by interest rates on real estate. If interest rates are high, they have less money to spend, so they spend less. If interest rates are low they have more money to spend so they spend more. The actual value of the home is of less importance.

 

[CN Tower]

It is interesting CN Tower that just 20 years ago, a million dollar salary was almost unheard of unless you were the CEO of a Fortune 500 company and then you probably barely got there. Now there is upper/middle management getting there with bonuses and stock options.

It's still very rare:

Only 2500 people in ALL OF CANADA make $1.845 million or more!

shares of income for the richest 0.01%
In 2007, the richest 0.01% of Canadians made a minimum of $1.845 million. The average
income of the 2,500 people in this rarified group was $3.833 million.
The share of total income held by Canada’s elite (the richest 0.01%) remained remarkably
constant throughout the Roaring Twenties and Dirty Thirties, roughly 1.8% of the total. But after the war broke out, their share of total income fell dramatically,
dropping to 0.5% or less by the mid-1960s and staying at those levels right until the end of the 1970s.