RE:My Local Economy Appears Strong! Strange :-)nukester wrote: Been raising cash last couple weeks, sold 1/3 of my peyto and a bit more of my Suncor. I basically sold to the sleeping point. After watching the evening news, and being told the world is ending and the economy is crashing, I figured I should raise some more cash for the next big opportunity.
Being curious about the actual state of affairs in my neck of the woods, I took a drive from Los Angeles to SanDiego for the fathers day weekend.
A little background: Freeways have been packed for months during rush hour.
405 freeway (Major north / south freeway) took three + hours driving from Los Angeles to San Diego this weekend. San Diego is a major tourist destination. Typical drive time approx 1 hour 45 minutes without traffic. Restaraunts were PACKED everywhere I looked.
I counted six (2 million dollar) homes being constructed within a half mile radius of my house, and I did not even drive every street. I could only imagine what would happen if gasoline was cheaper.
Help wanted signs are hanging on numerous business's, more than I have ever noticed.
I know this is all anecdotal, but those housing starts looked like fresh projects.
Tried to get a tire patched on my wifes car this week. Went to four tire shops. All the stalls were packed with customer cars.Three shops said the same thing, we dont have enough staff to help you today. Many possible reasons, not alot of profit in patching a tire, but obviously these shops have ample business, and tires are not cheap, nor are they bought by the unemployed (typically) :-)
I know crashes take time, but I can not help but marvel at the dichotomy of what I hear in the financial news and what I am seeing with my own eyes.
Same thing with covid, all over the news, but nobody got seriously ill or died in my neighborhood.
Am I just lucky?
Do I live in paradise?
Is the main stream media being honest and accurate?
The world may never know :-)
Nukester
Thank you for taking the time to share the boots on the ground perspective.
My concerns are less "on the surface" and more focused on the foundations of household financial health.
I worry that households have backed themselves into the corner with debt.
Have a look, in Canada houshoulds have increased debt to gross income by 64% since the 2008 credit crisis.
We Canadians are addicted to cheap money; the trusted banks luring us in to borrow more and more while we are able to purchase less and less with that borrowed capital.
Housing prices in parts of Canada are inflated by as much as 100%, and yet people continue to buy.
So with this mega debt overhang, we have yet to see the impact of rising interest rates combined with food and fuel costs skyrocketing.
We went into the Pandemic is decent shape but we emerge with significantly more debt at a time when the cost of carrying that debt will rise much more than expected.
Think of the unsuspecting families who paid $1.2mm for a house when benchmark rate was 0.25%. Bank was glad to lend them $1.0mm for floating mortgage at 1.75%.
Great.
They can juggle the interest cost of $17,500 per year, that's what the stress test told them.
How about today?
Floating rate is now 3.00% or $30,000/yr and on its way to 4.50% or $45,000.
All of a sudden, the crowd of "Real Estate Only Goes Up" fanatics are wondering how to pay the annual $45,000 interest all while wondering why chicken, bread and vegetables and diesel costs are up 100%, along with services and taxes on inflated house value.
What else? That $45,000 is "after-tax" so we really need to earn $60,000 gross if our avg tax costs are around 25% annually.
$60,000 gross is $5k of your monthly wages required to ONLY carry the interest cost of mortgage.
Where does the money come from? Nobody got raises.
At some point the discussion of negative equity comes into play.
You proudly paid $1.2mm for a house that will be worth $900k, and you still owe the entire purchase amount to the bank who generously lent you the 7-figure mortgage.
There's way more leverage out there than we are aware of.
HELOCs, LOCs, Auto Debt, Student Debt, my Walmart Credit Card!!
George has gotta eat!
There is a debt monster swimming deep in the lake.
Just because we don't see it, doesn't mean it's not lurking.
I remain concerned. I am glad to hear our friends in the US are faring better than the avg Canadian household.
When it becomes clear that housing values are falling by 15-25% over 12-24 month periods, consumers will stop spending you better believe it.
Recession clouds are gathering. Will be all over the news this winter as Q4 consumer spending plumments.