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Candian Median family net worth was $300k!?

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  • Jan 24th, 2018 1:28 pm
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alanbrenton wrote:
Jan 11th, 2018 5:22 pm
Borrowers definitely have jobs but not sure how much they are truly making.
Lots of borrowers don't have jobs (aside from being 'landlords'), but are just leveraging existing equity to buy more RE. Mortgage lenders have been very generous in considering cashflows from rentals as part of income for the past number of years. One big lender got in a lot of trouble for doing that last year and had to be bailed out.
How can it not have been a short-term peak? By saying so, I'm not precluding it could have been a medium or long-term peak in the future, right? It's almost impossible to refute this statement so not sure what's ticking your OCDness! :)
Peak was a few years ago. Stagnant since pretty much, although down recently as supply overwhelms demand and hoarders lose interest.
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ksgill wrote:
Jan 11th, 2018 3:15 pm
300k per family does not sound very high even if you exclude real estate (this statistic doesn't). Unless you are a low income earner, if you consider balance in accounts such as RRSPs, TFSAs, RESPs, GICs and add to that vehicles and other crap people own, it's quite easy to get to this level. This is a median net worth for a family and not an individual, not sure why some posters think it's unrealistic.
I wouldn't say it is 'easy' for people in their 30s to have 300K in net wealth, not including real estate. Unless you finished school making well over 100K a year, that isn't going to happen...especially not easily/with no effort. Also talking real world and not RFD, where it seems lots do have $100,000 sitting in multiple savings accounts somehow, as they've maxed out all other avenues....somehow.
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burnt69 wrote:
Jan 11th, 2018 5:28 pm
Lots of borrowers don't have jobs (aside from being 'landlords'), but are just leveraging existing equity to buy more RE. Mortgage lenders have been very generous in considering cashflows from rentals as part of income for the past number of years. One big lender got in a lot of trouble for doing that last year and had to be bailed out.



Peak was a few years ago. Stagnant since pretty much, although down recently as supply overwhelms demand and hoarders lose interest.
What calendar do you go by that tells you peak was achieved a few years ago? It is common knowledge the short term peak was early last year using earth years and the solar calendar.

So one big lender out of how many again?
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burnt69 wrote:
Jan 11th, 2018 5:10 pm
A mortgage is an asset in the hands of the saver that funded it. Which certainly does count as an asset in the hands of the many Canadians that make mortgage-backed loans, directly or indirectly through a financial intermediary, pension or mutual fund.
...
Are you proposing that many Canadians are involved in mortgage lending and are getting rich off of that? I am sorry but most mortgage lending is done by banks/ CUs and not average Canadians so you can't simply extrapolate that way. The banks pay you 0.05% and then lend it out at 2.85%, that does not mean average Canadians are making money off of that.
Last edited by ksgill on Jan 11th, 2018 7:21 pm, edited 2 times in total.
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Conundrum1911 wrote:
Jan 11th, 2018 5:58 pm
I wouldn't say it is 'easy' for people in their 30s to have 300K in net wealth, not including real estate. Unless you finished school making well over 100K a year, that isn't going to happen...especially not easily/with no effort. Also talking real world and not RFD, where it seems lots do have $100,000 sitting in multiple savings accounts somehow, as they've maxed out all other avenues....somehow.
It is a median number, isn't it? I am not sure how/why it's up for debate. Also, I don't recall mentioning an age group (30's).
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ksgill wrote:
Jan 11th, 2018 7:21 pm
Are you proposing that many Canadians are involved in mortgage lending and are getting rich off of that?
I wouldn't say getting rich, not at present interest rates (although mortgage lending may be a more profitable proposition these days than investing in RE that is declining in price in the GTA/GVR). But mortgage-backed loans are a prominent constituent in the portfolios of nearly every pension fund, and a large number of mutual funds. GICs are bought by individuals and organizations which goes heavily into RE through intermediaries. Even cash checking and savings account proceeds are invested into RE-backed loans.

So if you calculate the amount of Canadian assets that are exposed to RE, you need to include not only the value of RE assets, but you need to include the value of the financing that Canadians hold against such. Canada's residential RE credit market is quoted at a size of approximately $1.5T, nearly all of it funded by Canadian savers.

Hence, approximately half of the assets of Canadians are directly linked to residential real estate.
I am sorry but most mortgage lending is done by banks/ CUs and not average Canadians so you can't simply extrapolate that way.
Nearly all Canadians are indirectly involved with mortgage lending by being the source of funding to intermediaries such as the banks. Banks, pensions, etc., are just intermediaries between savers and borrowers. CUs and banks are just conspiracies of savers coming together for the common purpose of lending their savings.
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^ I wouldn't be so sure. GICs and other deposits are covered by CDIC so those funds are not really "involved" directly in the mortgage lending market i.e. your profits losses are not dictated by the mortgage market.

Money is fungible and if you couple this fact with how they money is created i.e. "fractional banking system", it blows apart the theory that everyone benefits. Banks are inherently evil, profit driven institutions... No one is getting rich of their schemes. That's why I own a bunch of their stocks via my index funds. :lol:

FWIW, I have no deposits with banks and simply own stocks and paid my house off as a priority early on in my career but I get that it's all anecdotal evidence.
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ksgill wrote:
Jan 11th, 2018 7:34 pm
^ I wouldn't be so sure. GICs and other deposits are covered by CDIC so those funds are not really "involved" directly in the mortgage lending market.
CDIC coverage has nothing to do with where a bank chooses to lend out funds. CDIC-insured funds fund mortgages all the time in the Canadian banking system. CDIC and the OSFI ensure that the loans are appropriately valued and the bank's owner-equity is sufficient for predicted levels of loss in the loans. ie: that the bank is solvent and able to meet its obligations as they come due.
Money is fungible and if you couple this fact with how they money is created i.e. "fractional banking system", it blows apart the theory that everyone benefits.
Fractional reserve refers to the fact that a bank can leverage its funds, ie: a bank can use $1 of equity to borrow and lend $10. It does not allow a Canadian bank to create money in excess of money borrowed from customers through, amongst other instruments, checking/savings accounts/GICs/bonds/etc. Balance sheets...must....balance!
Banks are inherently evil, profit driven institutions... No one is getting rich of their schemes. That's why I own a bunch of their stocks via my index funds. :lol:
Of course lots of people are getting rich off owning banks. But because banks don't produce anything, the wealth is extracted from customers, historically borrowers, but sometimes even savers in the form of wealth management fees, etc.
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burnt69 wrote:
Jan 11th, 2018 7:40 pm
Fractional reserve refers to the fact that a bank can leverage its funds, ie: a bank can use $1 of equity to borrow and lend $10. It does not allow a Canadian bank to create money in excess of money borrowed from customers through, amongst other instruments, checking/savings accounts/GICs/bonds/etc. Balance sheets...must....balance!
So if a bank has $100, they can lend out $1000, how is that not creating money " in excess" of what they have in deposits? Can you pay bills for 10x what you have in your bank account?

Yes, the banks don't produce anything but to get to my original point, what banks make off of mortgages does not directly benefit the depositors, i.e. this does not directly affect the net worth of an average (or median) Canadian.
Last edited by ksgill on Jan 11th, 2018 7:46 pm, edited 1 time in total.
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blitzforce wrote:
Jan 11th, 2018 1:33 pm
I don't think you should have this mentality. Thinking like this every time you spend a dollar pretty much means you'll be staying in your room all day. How are you going to explain to your date/girlfriend/wife that every dollar you spend will take away $4 of retirement spending power. Unless you're going to be able to find a women with the same ideology, you're going to be alone forever.
I also said this:
Not to say you should not spend now. It's a balance between current spending, future spending and how long you want to or can work to achieve your goals.
Finding that balance is the difficult yet important part.
Invest your time actively and your money passively.
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ksgill wrote:
Jan 11th, 2018 7:46 pm
So if a bank has $100, they can lend out $1000
If a bank has $100 in shareholders equity, they can borrow $900, and lend out $1000 assuming they're allowed to leverage their funds 10X, ie: only keep a 10% net worth reserve. The OSFI regulates this number as a matter of regulatory policy, and different types of investments have different capital requirements.

, how is that not creating money " in excess" of what they have in deposits? Can you pay bills for 10x what you have in your bank account?
Nope, and a bank can't either. Banks have to borrow every dollar they lend out from their customers or shareholders, ie: savers. Banks are intermediaries.
Yes, the banks don't produce anything but to get to my original point, what banks make off of mortgages does not directly benefit the depositors, i.e. this does not directly affect the net worth of an average (or median) Canadian.
My original point was that a significant chunk of the assets of Canadians are involved in mortgage finance, as lenders to mortgage-backed borrowers (ie: mortgaged homeowners), and hence, these assets comprise the assets of Canadians.

Banks are owned by savers, by definition, and their profits from mortgage lending flow to savers. In a CU, this is distributed amongst all of the depositors/savers who collectively own the bank. In a shareholder-owned bank, savers choose which part of the capital structure of the bank they wish to lend their savings to, and receive a return that differs based on where they sit in the capital structure.
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^ banks borrow/loan from/to the Canadian government at what (1%)? That's how they create money. Here is a paper if someone is interested in how money is created at both federal level and by private banks.

https://lop.parl.ca/Content/LOP/Researc ... onomics#a3

Either way, 300k is not unachievable if you work hard... Median means that half of the households are above this level and that's not "hard" as far as I am concerned.
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ksgill wrote:
Jan 11th, 2018 8:10 pm
^ banks borrow from the Canadian government at what (1%)?
Nope. The Canadian government does not lend money to the banks. Savers do.

It is actually considered a sign of profound weakness if a bank has to resort to even taking out a secured loan from the Bank of Canada.
That's how they create money. Here is a paper if someone is interested in how money is created at both federal level amd by private banks.

You have a pretty significant misunderstanding of how banking works. If a bank could just borrow all its money at 1% from "the government", why do they bother paying 2% or 3%, or whatever? Why bother with branches, tellers, and all of that, if they could just borrow at 1%? Why bother with the money markets? Private banks are always seeking out sources of funding to make new loans with -- they do not, and cannot create money!
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From the article I posted:
Money Creation in the Private Banking System
Private commercial banks also create money – when they purchase newly issued government securities as primary dealers at auctions – by making digital accounting entries on their own balance sheets. The asset side is augmented to reflect the purchase of new securities, and the liability side is augmented to reflect a new deposit in the federal government's account with the bank.

However, it is important to note that money is also created within the private banking system every time the banks extend a new loan, such as a home mortgage or a business loan. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money (see Appendix B). Most of the money in the economy is, in fact, created within the private banking system.

A key similarity between money creation in the private banking system and money creation by the Bank of Canada is that both are realized through loans to the Government of Canada and, in the case of private banks, loans to the general public.

One difference between the two types of money creation is that there is no external limit to the total amount of money that the Bank of Canada may create for the federal government.9 In contrast, the amount of money that a private commercial bank is permitted to create depends on the amount of the bank's equity relative to its assets. The limiting rules, known as "capital constraints," are set by the banking regulator in guidelines.10 Another difference is that the creditworthiness of the borrower is the key factor in the decision by a private commercial bank to provide a loan to a private entity, while this is not a factor in the Bank of Canada's decision to lend money to the government.
Ignoring all of the above, why do our HELOC/Mortgage loan rates change based on the bank of Canada overnight interest rates? And more importantly, why are they always higher than BOC rates?
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ksgill wrote:
Jan 11th, 2018 8:18 pm
From the article I posted:
The article is discussing the systemic effect of leverage. It makes clear that a private bank must borrow its funding, and is constrained by the availability and cost of funds it can obtain as well as the risk tolerance of its owners.
Ignoring all of the above, why do our HELOC/Mortgage loan rates change based on the bank of Canada overnight interest rates?
The Bank of Canada engages in monetary policy, ie: either adds or removes liquidity from the money markets, by selling or buying GoC securities in exchange for cash. To implement monetary policy including an interest rate target, it will add or remove liquidity accordingly until the cost of funds is within their policy target.
And more importantly, why are they always higher than BOC rates?
Equity capital in the bank's capital structure has a cost which is significantly greater than the BoC rates (stock market investors usually want 10-15% annualized returns!), hence, banks must loan at a rate greater than the BoC target in order to provide for a return on equity.

Individual types of collateral that are offered by a borrower for a loan are perceived to have different levels of risk associated with them. The rate you get on a loan against government bonds, for example, will be quite different than the rate you get on a loan against Bitcoin.

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