Saturday, June 13, 2009

Financial literacy redux

We have an opportunity with this blog, should we choose it. I've long since given this place up as my own little recording of a house buying journey to the collective voice it may represent, but more importantly, to the collective intelligence it definitely does represent.

NeedsAnalysis made a suggestion to me last week: "why not use the collective knowledge shared at HHV to help readers improve their financial well being?"

Should this blog evolve into being more than tongue in cheek commentary on the MSM/industry marketing speak and stats analysis? If it is, I will need the help of readers. I won't claim to have a wealth of knowledge to draw from, but that reminds me of the days I started writing here.

So here's my proposal: we'll tackle a topic a week or so, basic financial stuff, taxes, calculations, money management, budgeting etc; essentially all the boring stuff we don't talk about at dinner. I hesitate to discuss particular investments, but we could probably talk asset classes.

Of course, we will still talk real estate. What say you readers? You game? Willing to contribute like Reid has? Please leave your thoughts in comments. I'll keep this thread going for a couple of days, then hit the first topic after a bit of research: the time value of money. I'll need suggestions for future topics, but I'd encourage you to consider contributing--I've learned a lot during research for writing here, I bet you will too.

My sincere hope for this shift is a positive one: I've learned a ton from the regular participants here, I think there is a wealth of financial knowledge to be gained, I really hope you will continue to contribute your experiences, knowledge and ideas.

If we do go down this path, should the name of the blog change to better represent the discussion here? If so, I'm keen to hear your suggested names.

25 comments:

eP said...

Maybe here's a direction (or at least, it's one of the top questions for my family):

-How the heck can I by a house in Victoria ?

Financial tips toward this end, strategies, discussion of how to find something affordable...

Robin said...

I think this is a fantastic idea. My wife and I are in the process of figuring out how to relocate to Victoria, my home town, from Vancouver. We're loft owners in Gastown and looking to upgrade to house to raise a family. That is just not possible in Vancouver unless moving to Surrey is an option, which it's not. Oddly enough, Victoria appears far more affordable on the real estate which just goes to show you how out of wack the entire real estate market is in southern BC. Anyway, any advice on financials, RE, would be greatly appreciated. I'm an architect so I'd be happy to throw my $0.02 when needed.

Metaldwarf said...

I am game for contributing. I am an Employee Benefits and Group Insurance specialist, I can contribute for topics of maximizing your benefits at work, as well as personal Life Insurance, Disability Insurance, Critical Illness Insurance, Executive Compensation for business owners.

A lot of these topics revolve around risk management and tax savings/sheltering. Relating directly to real estate I can start by talking about how bank "mortgage insurance" works and how insurance company mortgage insurance works, the pitfalls and benefits of each.

I can talk about investments but I would rather not as it is not my focus, and I am only licensed to sell Segregated Funds, which aren't for everyone.

I am also happy to provide disclosure about myself and business if that makes people feel better. I am paid by commission *gasp* so I can't be trusted /sarcasm. ;P
I also promise I won't use this as a forum to advertise my business, other than disclosing who I am.

Bitterbear said...

I am a registered psychologist and I have been using this blog as personal therapy for the last 12 months....every time I get depressed about renting I tune in and magically feel better.

I am interested in the psychology of debt and the power of "loss aversion" and how this is being exploited to fuel the RE hype. Like most psychologists, I would be more than happy to opine if anyone is willing to listen!

mr4am said...

HHV, there's lots of generalist financial blogs out there, even a few OK Canadian ones, I would ask what this one could offer that is unique and worth the attention of Victorian's?

I do hope Roger, Just Jack and Reid continue to post here about real estate matters though, because to me they have provided the most balanced intelligent analysis of our local real estate markets I could find anywhere, and that's of higher value (to me) than creating another generalist blog about financial matters.

My real-world area of expertise is in the field of IT, which would have been very useful in the .COM rise & blow up, but not so much this time around. That said, I'm an economy enthusiast (if you can call a bear that), and may comment here and there for whatever it's worth.

Regards,
Mr.4AM

jesse said...

I would concentrate on the simple concepts around finance. A topic like the time cost of money is a good one, if you do it properly. I haven't seen a Canadian blog that deals with the simplest of financial concepts in a straightforward way.

Here's an example of someone trying to simplify the bond market: https://self-evident.org/?p=634. I have found these posts at about the right level in terms of complexity and simplicity.

Vic said...

jesse,

That would be a great idea, I still find it easy to get the bonds/interest rate/yields inverse relationships etc confused as stocks is more my thing.

jesse said...

"Should this blog evolve into being more than tongue in cheek commentary on the MSM/industry marketing speak and stats analysis?"

Behind satire and analysis like the stuff on this blog is assuming readers have basic financial understanding for understanding what the posts are really trying to say. I think a mixture of analysis, satire, and basic financial theory can be a powerful message.

I know a few commenters here will ensure the theory posts are correct.

omc said...

Seen a freind who is looking at houses a bit above our price range yesterday. He asked how the hunt was going because we had started to sniff around 4 months ago. When I said we weren't entering as we felt it was far too risky with the affordability fastly eroding to last years levels he looked like I punched him in the stomach. He didn't argue though.

Roger said...

Canadian Mortgage Trends has a great article on historical mortgage rates and where rates are heading. Check it out at CMT - Missing the Boat..

A 5-year fixed mortgage can be had nationally for around 4.35% right now. That’s 1.85% below the average 5-year fixed rate over the last 18 years. (The average is 6.20%, based on 1.5% off posted rates.)

Dumb Canuck said...

Roger - thanks - are you indicating that we should be using the 6.2% as the nominal mortgage rate value for whether or not we can afford a house? Plugging that into a mortgage calculator, with the median household income of 72K in Victoria, would give what as a sustainable housing price?

HHV - I would prefer to see a mix of real estate information and financial literary. The RE story is slow right now, but likely will pick up shortly. Getting too much into investments, etc. will bring in a lot of get rick quick types who want to pump whatever they are pumping. The approach would have to be on financial literacy (and local RE) and avoiding discussion on any particular assets within an asset.

HouseHuntVictoria said...

DC, agreed. I don't want to talk about individual investments.

HouseHuntVictoria said...

If you use a 6.2% interest rate, 5% down ($20,000), 35 year amortization to "afford" a FTBer special at $400K, the mortgage financing at $72K/year drops you down to $330K. Does this mean that entry level homes drop down to $350K?

DC, I see the correlation you are attempting to make, but I don't think the numbers work out like that.

I think Roger's well-used inflation plus trend line demonstrates where prices should drop to, the question is will they drop quickly, or will prices drop slowly/flatten for a prolonged period of time so that wage inflation negates the currently necessary large price deflation?

Personally, waiting years to buy isn't as attractive an option anymore. We can rent the type of home we want in Victoria for considerably less than we can own it, but we can own the same home elsewhere for considerably less than what it costs to rent it here. Why is a relatively mild winter and depressed wages comparative to elsewhere worth so much? We've decided it isn't.

Reid said...

HHV, I think your proposal here is a great one. As I suggested in my previous post buying a house should be taken with a holistic view such that one understands this decisions impact on your total financial plan. Consequently there is a fit here to look at some of these other aspects of financial planning to the extent it may help readers make a more informed decision when they do buy.

Things are likely to stay crazy on house buying front for a few more months and such we are going to have to wait a while until reality settles back into the market, so this would be a great time to do this.

Some areas that may be appropriate in terms of their alignment with buying a house could be:
• On the shorter term budgeting and cash flow management and aligning with the real cost of home ownership (may not be as relevant for those that have already owned)
• The medium term impact of higher interest rates on reset which we have already discussed but maybe tie into one cash flow more directly
• Longer term the impact on retirement planning (this is probably the most important in terms of can I afford a house). What do I need to retire and how can I get there. Impact of buying a cheaper house on your retirement.
• Financing structures for people with low down payments and linkage to expensive CMHC insurance and withdrawing $ from RRSP
• Pro’s and con’s of paying down the mortgage versus making and RRSP contribution
• Issues and opportunities associated with renting out basement in terms on home affordability, taxes and longer term capital gains

I agree with keeping specific investments off the table other than say assets classes or geographic regions. I have found that if you can get a diverse group of people who really know and understand their industries together to share knowledge this can be an excellent way to develop a well though out and diversified portfolio, but it is something done off line of this venue.

Just Janice said...

I'm going to be a bit of a dissenter about the blog shifting focus. I visit here because I actively watch the Victoria Real Estate Market. In part so that I will know when 'value' has returned to this particular asset class.

I generally don't go here for financial advice (although, understanding the financial underpinnings of the market is important, and being financially literate is critical to at the very least not stepping into the biggest cow patty in a generation) there are other places to go for that. I also don't go here for general economics fodder (calculated risk, paul krugman, the economist's view, the American prospect, Greater Fool (to some degree)and others fill that role).

I go here because its about here and I live here, and it's nice to know that while my view may be 'at the margin', it is at least supported by others who think critically about this market and don't whole heartedly accept what is told to them by MSM et al.

The thing that is limiting good analysis about the Canadian market in general and the Victoria Market in particular, is that we don't have good enough data. We don't have good data on how many homes in Victoria are owned outright. We don't have good data on how many mortgages are 'behind' in payments. We don't have good data on how many mortgages there are in Victoria, at what rate, and with how much principle remaining, and with how long to go before 'renegotiation'. We don't have good data about home equity lines of credit. We don't have good data about why people are selling, or really why they are buying. This lack of information is one of the things that has kept the market going. It'll also be one of the things that'll keep it falling, because right now it's fairly difficult to tell where the 'top of the market' is and where the 'bottom of the market' might be. All that seems to generate the turning points is a general feeling 'things are too overvalued, now is not a good time to buy' or 'things are undervalued now is a good time to buy'. And when an investment this big (or alternatively when investments in the stock market) are driven by 'gut feelings' things get messy. These things should be driven by clear analysis of the data, but the data is missing. All we've got is price levels and sales volumes, and it seems pretty out of context to me. And this is why this blog needs to continue to be about Victoria's RE market - it's one of the few bastions of credible information on this topic.

(FYI - now is an absolutely aweful time to buy a house in Victoria. Just remeber, buying a house is easy, keeping a house depends on being sure you'll be able to make the payments - and making a home is more about the who you live with than the where).

Roger said...

Just Janice,

I agree that we don't want to shift the focus away from Victoria Real Estate. We have discussed some of the other stats you were referring to in your post. In particular the number of owner occupied homes in the CRD, ratio of owned vs. mortgage houses, demographics, income levels etc. have been debated in the past.

But after 2 1/2 years of posting about stats and price trends it is getting a bit old. The RE market changes slowly and we need to keep things fresh. So I suggested to HHV that we add some financial planning and literacy topics, as it pertains to real estate, to the blog discussion. Your economic posts, Reid's guest posts, Just Jack's insights and other contributors perceptions and ideas have been well received.

I hope we can all contribute and become more savvy homebuyers in Victoria by discussing some of the financial concepts associated with buying and owning a home (budgeting, maintenance, mortgage tradeoffs etc.)

HouseHuntVictoria said...

I think Roger just explained it with one phrase that I may have omitted "as it pertains to real estate." I'm not interested in turning this blog into a discussion about the merits of a segregated fund vs a mutual fund, or gold vs silver, or real estate vs the stock market. Rather I'm hoping, selfishly, that the collective wisdom will help to educate me, and others, but me first ;-), on the greater financial concepts and issues that we believe the masses are ignoring, and thereby taking big risks.

I don't inflate the importance of this blog by suggesting it is meant to convince anyone of a decision around buy now or not or later or not etc, but i think if we're going to have this discussion, perhaps we can share some of the economic basics with readers (me) like opportunity cost, time value of money, etc that will strengthen the wait for cheaper prices message beyond "it's risky to buy now at high prices low interest etc."

Roger had a great suggested title: Victoria Savvy Home Buyers.

Roger said...

HHV,

Just thought I would let you know homebuyer is a recognized word.

Suggestion..

SavvyHomebuyerVictoria

Anyone else with a suggestion..

Dumb Canuck said...

HHV - for me, it is having family (in-laws) here. My work has recently became quite portable, however I have a great job - one that would take a lot to pull me away from.

My comment about the 6.2% was related to what the median family could likely afford. Realistically though, the median family doesn't buy the median house. They buy a collection of the lower priced houses, townhouses and higher end condos (2+ bedrooms).

The long-term price appreciation is probably a better curve to go off of. Using the income to price ratio as a validation against price appreciation is useful. Both show the same thing.

Dumb Canuck said...

How about 'Victoria Home Buyer Board"

Vic said...

I'll sit back and observe, personally I like the anecdotal posts and banter and is why I like to come here.

In retrospect from my last post,if this turns into too heavy a financial blog,( even though real estate related ), I think you will lose the character that has been developed here the last couple of years.

If one needs real estate financial advice I think it needs to come from a professional's blog. It's one thing to make some stock market comments or real estate calculation stuff but going too heavy may cost you some readership. Just my two bits.

Travel Girl said...

I'm a long time reader but I haven't commented much. Anywho, I think it's a great idea to shift the focus a little. A lot of us are on the road to buying in the future (when prices aren't ridiculous) and it would be fun to discuss the best ways to save in the meantime.

Personally, I'm super frugal, do a bi-weekly budget, and have saved much more than my peers seem to have. So I could give my $0.02.

I also love the anecdotal stories of others. I have one of my own: I know of two couples (acquaintances of mine in their 20's) who bought new houses (one on Bear Mountain *cringe*) - don't know how they could afford them. But alas, I've heard that they are in a bit of trouble and may have to sell at a loss. I also know a few people that have just bought or are planning too and I just have to think "WHY???". I've tried to convince them but I guess they had the "fever".

PainInThe said...

Nice new look, but I'm missing Bear Is Ready already :(

workhard said...
This comment has been removed by the author.
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