Credit, market corrections, and a money-saving suggestion


Special to the VOICE

There has been an enormous amount of financial news of late. Most of this news is not very positive, at least not for Canadians. It seems that we, as a nation, are not particularly good at saving money. We are very good at spending money, especially borrowed money.

A report from CIBC stated that people between the ages of 45 and 64, the pre-retirement, better-get-saving-for-the-golden-years crowd, are in very bad shape. One third of them have nothing saved for retirement. One in five has less than $50,000 saved. Most have no formal retirement plan: only 32% of men compared to 22% of women are actively engaged in planning for what could be 30 years or more of not working.

Nearly three-quarters of the workforce have no employer pension plan and, outside of civil servants, very few have a defined benefit plan. That’s the type of pension that guarantees an annual payout linked to inflation.

The CIBC report indicated that Canadians thought that they needed $756,000 to retire comfortably, yet have only saved an average of $184,000.  CPP and OAS will cover the bare necessities for some, but most seem to be relying on lottery winnings or selling their homes.

The January jobs report saw a decline of 88,000 part-time jobs, mostly in Ontario and Quebec. This is the biggest monthly drop since 2009, and 2009 was not a good year, if you remember. It could be seasonal—Christmas retail and delivery jobs disappearing—or it could be related to the recent increases in the minimum wage. Every extra cost on business has a consequence. A retailer or restaurant can either raise prices and risk being uncompetitive or reduce labour costs or both.

The stock markets in North America have been experiencing a correction lately. These corrections are normal and necessary. When stock valuations rise too fast, a small trigger is all that is needed to bring things back to reality. The trigger this time is the spectre of rising interest rates, especially in the U.S. The recent tax cut in the U.S. was a signal to the markets that inflation is back and the cost of borrowing is going up. Stocks do not like rising interest rates and reacted accordingly. Where the market finally settles is unknown, but this event is not like the Great Recession that started in 2008. The Bank of Canada will continue to raise rates, pretty much in lockstep with the Federal Reserve in the States, which has indicated at least three increases in 2018. This will further erode house prices as it reduces the amount of money people can borrow for a mortgage. The recent rule changes for mortgage lending in Canada have already taken one out of five prospective buyers out of the market.

The January real estate sales numbers have been trickling out and the trend remains the same: down. I will not bother you with all of the statistics this time because January is a slow month and it was really cold. Suffice to say sales are slowing, listings are rising and prices are dropping in the GTA, Hamilton-Bulington and other surrounding communities in Ontario. Niagara sales prices are difficult to gauge because sales were low and the numbers are easily skewed when a couple of high-priced homes sell in a small community. Reports from two preeminent sources came to the same conclusion. The Federal Reserve in Dallas and the Financial Times in London identified Canada as having the fastest rising house prices in the world up to April 2017, and now as having the fastest falling prices in the world. Much like the stock market when prices rise too fast, they fall at an equally fast pace. 

A recent and much touted, at least by local politicians, report from National Bank identified the Niagara Region as having the second- highest economic performance in Canada. The criteria for this great honour seem to have been primarily based on the housing market. The CEO of the Greater Niagara Chamber of Commerce, Mishka Balsom, rightly takes issue with this report.

“Housing prices are not an economic activity,” she said. “We are not producing more goods, we aren’t creating more jobs, we aren’t generating more services.”

In fact I would add to this that rising house prices are creating more debt, shutting more people out of the housing market, giving people a false sense of wealth and allowing people to borrow far more money than is sensible, to either buy houses or renovate the house they’re in. This level of borrowing and spending helps explain why Canadians went from net savers a generation ago to prolific spenders today, with no plan for retirement and little reserve capital for a rainy day.

Speaking of no reserve capital for a rainy day, last Thursday the Region decided to help the taxpayers of Pelham with their ongoing struggle with Town Hall.

After a long and complicated struggle, we finally got the Region to support calling for a full, genuine forensic audit of the sorry state of the Town’s finances.

Two things stuck in my mind from the meeting. The group of townsfolk that attended were, on the whole, of an older age demographic, the age group from the previous generation that experienced the effects of high interest rates, housing busts and too much debt. Their experiences were ignored by the Mayor and Council. They were marginalized and some even demonized by the Mayor.

They should have been consulted and valued for their knowledge. Instead of a Town that is divided and angry, the Mayor could have created an atmosphere around the many changes in Pelham in which citizens could have participated and taken a level of ownership and pride. Instead, he gave us empty promises, platitudes, and marketing slogans, and he has repeatedly dissembled information concerning Town finances.

The second thing that stuck in my mind was a comment from Mayor Sendzik of St. Catharines. He rightly pointed out that the arenas will be built, the money spent and the debt will need repayment. He then asked: What are we going to do about it?

There are two things that Town Hall can do: raise taxes or cut spending.

Taxes have already been set for this, an election year. This is a caretaker budget that does not fully address the debts the Town has taken on in the name of growth.

There are certain cost reductions that could be made immediately. I would start by terminating the contract of the CAO. He seems to be one of the main proponents of the Town’s spending binge. His arrogance and off-putting attitude towards taxpayers has even rubbed-off on the Mayor and Councillors. When mentioning why Poth Street would not be repaired, the Mayor asserted last Thursday in St. Catherines that it would not reflect enough “value” for money. When asked about the repair to Poth Street two weeks ago, the CAO replied, “Is the repair going to create wealth? Do the nine parcels create wealth?”

It seems that the Mayor and the CAO regard us as but parcels, to be measured against an unknown formula. (Presumably commercial zoning automatically moves one to the front of the bus.)

If we parcels do not generate wealth for the Town then we are a liability to be ignored and marginalized.

I would argue that the CAO is not value for money, and neither are a number of the people on the Sunshine List in this small town. We can’t afford them. We never could afford them and they must go. When times are tight—as they seem to be getting —the sensible thing to do is to put your house in order before it gets repossessed. Time to get cracking.




How confident are you in the overall health of the Canadian economy through 2018?

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The Voice of Pelham
Pelham's independent news source from the heart of Niagara.