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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

Roma: Six-figure salaries. They aren’t what they used to be.

Rob: Dashed hopes for lower mortgage rates.

Roma: And a first-person account of driving an EV from Toronto to Montreal.

Rob: These are among the most popular Globe and Mail personal finance stories this year. All three reflect the year’s big question of how to grapple with rising costs.

Roma: Welcome to Stress Test, a personal finance podcast for millennials and Gen Z. I’m Roma Luciw, personal finance editor at the Globe and Mail.

Rob: And I’m Rob Carrick, personal finance columnist at the Globe. 2023 was a year where inflation whittled away at everyone’s bank accounts.

Roma: Everyone was feeling the strain this year. Rob, do you think that any of these topics or any of these challenges that we’ve had with affordability are going away in 2024?

Rob: No way. I think 2024 is going to be a harder year of affordability because the economy is going to slow down. But I think we’re all going to be straining to carry the loads we’ve accumulated of debt and spending and everything else.

Roma: I think that 2024 is shaping up to be another difficult year. And I think that a lot of these same things that we’ve seen are going to continue, which makes these outlooks that we’re about to embark on super interesting. After the break, I’ll speak with Globe reporter Erica Alini about her story on whether a $100,000 salary is enough for a comfortable life anymore.

Erica: A $100,000 income has long loomed large in the collective imagination as a code for having made it by many metrics. $100,000 a year is still a lot of money. It’s more than what roughly 90% of Canadians declared as their annual income in 2020. But when today’s basic living costs are taken into account, there are many parts of the country where a low six-figure salary no longer goes very far. If Canada’s affordability crisis was an iceberg, $100,000 earners would be the tip of it.

Roma: Erica, welcome to Stress Test.

Erica: Hey, Roma. Thank you for having me.

Roma: So your November story on whether $100,000 is a comfortable salary hit record traffic its first weekend. It was the top business story on the Globe and Mail site. Where did the idea for this story come from?

Erica: So the idea came from a conversation I had with a rental agent in Toronto, and he sort of casually mentioned that an income of $100,000 like you probably wouldn’t make the cut. He’s scanning rental applications and tenant applications. And he was like, you have to be kind of closer to $150,000. And I was really taken aback.

Roma: Sure. I mean, $100,000 has for a long time been considered a very, very good income.

Erica: And it is still a very good income. I was like, wow, that sounds crazy. Then I looked at the numbers. And I have to say, I look at these numbers every month, but I never crunched the numbers that way. And when I took a look, I was like, yeah, actually, even the average like this, this person was talking about quite fancy units, so above average. But even when you look at the average, it’s tight for someone on $100,000 to rent a one-bedroom in the city.

Roma: Okay. So the rents are shockingly high. What is the other eye-opening figure you learned about when you started to report this affordability crisis?

Erica: Yeah. So, when you look at someone who makes $100,000 across provinces, there are some variations. But the take-home pay is pretty much $6,000  in that neighborhood. And that’s in Greater Toronto and Greater Vancouver, I’m not just talking about the downtown core. You’re looking at rents that are between $2500 and $3000, and that’s going to eat up a good 40% or more of your take-home pay.

Roma: So 40% is going towards housing. What are the other things that you’re potentially not able to do or that are falling by the wayside?

Erica: So the story was that they couldn’t afford vacations. They can’t afford to save for retirement every month. They’re still putting something into their retirement accounts, but just not reliably, not every month. If something comes up that’s a bit of a surprise or emergency expense, that’s where you know, that 500 bucks to say is going instead of going into their retirement account. So it’s not like we’re not talking about financial hardship here by any means. Suddenly, there are a lot of Canadians who are struggling much more.

Roma: Why do you think the story resonated with readers at this specific period of time?

Erica: There were two groups of people that came forward. Some people wanted to talk to me because they wanted everybody to know that because of the housing crisis, even they, at $100,000, were really quite tight financially. And then there were people who were doing fine, who live in much, you know, cheaper places from, you know, in terms of housing prices and rents. And they wanted to come forward, and they wanted to say, I’m lucky, and I know I’m lucky, and I shouldn’t be lucky. You know, I should be fine no matter what, not just because I happen to live in a particular area of the country. That’s still affordable.

Roma: Mm hmm.

Erica: So, on both sides, I think there was a recognition that this is a real issue. And I think that’s why people were willing to come forward.

Roma: Now, you interviewed Canadians of all ages for the younger Canadians that you spoke with. How much, whether or not they’re able to get by comfortably on the salary, depends on where they live or when they lock in their housing costs.

Erica: So people are used to, at this point, Canadians know that how much you pay for housing depends greatly on which part of the country you live in. But the thing that people don’t who don’t follow these things on a regular basis of what they don’t understand is that it’s also increasingly a matter of timing.  Did you lock in your shelter costs, whether when you signed the lease or bought the house? And in part, it’s generational. Right. And so obviously Canadians who are just striking out on their own now or facing huge, huge costs. They’re exposed to this crazy prices that we’re seeing. But it’s also like it affects other generations, like older Canadians, you know, older Canadians. It’s like any time you have to move, you’re forced to, whether it’s a divorce, whether you know, you know, your landlord once the house for themselves. So at any time, there’s a transition, and you had your shelter costs locked in, and you were exposed, and you’re forced to go out into the market and find housing all over again; that’s when you become financially really vulnerable.

Roma: I think one of the reasons your story resonated with so many people is because it touched on so many things, how much people are earning rent and housing costs, where and how people are choosing to live what they do for a living. Let’s pivot to looking ahead. What do you see going forward as a situation in some of these areas?

Erica: So it’s interesting to see what’s happening in the rental market. So, for the first time in some time, we’re seeing rents in Toronto and Vancouver kind of moving sideways a little bit instead of continuing to go up really fast. On the other hand, we’re seeing some really big gains in some smaller communities further and further away from the big cities. So I was thinking, well, for example, rents are really growing. Ontario is rising quickly. So there’s that going on. And there’s a question of, like, how high can rents go, right? Because, at the end of the day, rents are still anchored by how much people can afford to pay. And the other variable for people is income. And, you know, we’ve seen people that people have been able to switch jobs and lock in some hefty wage increases. Labor shortages are coming out of the pandemic that really benefited workers. And that seems to be coming to an end, or, you know, certainly, the labor market is cooling off quite a bit. We’re seeing some layoffs in some of the bigger employers in the country. So there’s a lot of uncertainty in terms of people being able to keep their jobs and wage gains.

Roma: So if you’re a millennial or a Gen Z and you’re listening to this, what can you do to position yourself for some kind of success?

Erica: So that’s that’s the million dollar question.

Roma: It’s the $100,000 question.

Erica: What can you do? You know, for one, if your job allows it and if your personal circumstances allow it, maybe consider moving away from where you grew up. I know that that’s not acceptable or desirable for everybody, but it’s something maybe to consider, you know, maybe give it a harder look than you would have otherwise.

Roma: People that grew up in one of the big cities.

Erica: Yeah. If you grew up in one of the really expensive markets, another option is to live with your parents for longer. Again, it is not possible for everybody, but something. Something to consider. You can really save a lot of money by staying at home for longer. The other thing that people are doing is just. They’re just getting together with roommates and living with roommates for longer and sharing those shelter costs for and for longer. That also is not always desirable. But I think that in general, the takeaway is that you have to be very aware of what’s going on in the housing market, in the rental market, and you have to be strategic, and you have to think ahead, and you have to have a plan.

Roma: So if $100,000 is an amount that is leaving people feeling anxious and uncertain, is there going to be a new number, and what’s that number?

Erica: So I did a little bit of number crunching, and depending on where you live, it looks like the new $100,000 is more like $120,000 or even $150,000.

Roma: After the break, I’ll speak with Rob about how his story on the collapse of a U.S. bank was good news for mortgage rates in Canada.

Rob: To be mercenary about the demise of Silicon Valley Bank. It’s the break people buying a home or renewing a mortgage have been waiting for. The global financial system has been shaken by the failure of SVP, which happened when it couldn’t satisfy the demand from depositors to withdraw their money for the first time since the 2008 crisis. There is real concern about the financial strength of some banks. If you are a borrower, this is the best news in ages.

Roma: Rob, this column you wrote in March of 2023 about the collapse of a U.S. bank was one of the top three personal finance stories of the year. Why do you think so many of our readers care about the collapse of a bank in Silicon Valley?

Rob: I think because that column opened up some hope of lower mortgage rates. Now, that didn’t actually happen, but at that moment, there seemed to be a lot of chaos in the financial system because a U.S. bank could collapse. People were thinking, oh my God, is this like 2008 all over again? Interest rates in financial markets were edging lower, and people were thinking this might mean lower mortgage rates, which would be great for the housing market. And I think people sort of piled into that story to read about the possibility that they’d get a break on mortgage costs. It didn’t actually happen. And in fact, we’ve had so much whipsawing up and down on mortgage rates throughout the year.

Roma: Rob, what was happening in Canada’s housing and mortgage market when you wrote this? What was the scene nine months ago?

Rob: Well, I mean, everybody was petrified about rising mortgage rates and variable-rate mortgages. Homeowners were seeing their costs crank higher. And if their payments hadn’t gone up, they knew that there would be a reckoning. Then, people with fixed-rate mortgages were renewing their mortgages at much higher rates than they had in the first go-round. And everybody was scared. If this hasn’t happened to me, it will happen. Is there any hope? And, of course, there was a brief flicker of hope that mortgage rates might either trend lower or at least stabilize.

Roma: So that was the first bite of, oh my gosh, this is going up. And were people prepared for that?

Rob: No. You know what? There was just when people were buying houses in 2021 or 2020, you know, there’s this everyone’s got to have space. It was the pandemic. People were moving and moving to bigger places. Interest rates were super low, and nowhere in the fine print was it saying your mortgage could go up a lot in price. It just seemed that we were in this world of mega-low rates, and there was a lot of talk that we could have low rates for a long time, and in fact, we didn’t.

Roma: Now, first-time homebuyers would have been hard hit by this because it’s one thing to know that rates could go up. It’s another thing actually to go through it.

Rob: You know, people who’ve owned houses in the past 10, 15, 20 years have never had this. I mean, look, my wife and I bought a home in the mid-1990s, and I think I can safely say that almost every mortgage renewal we had was lower. Like I was in, we have to manage our finances in case our mortgage payments go up while they never did because interest rates are going down, down, down. And so everybody was so accustomed to low rates. Then we had the pandemic, and it was lower for a longer time, said the Bank of Canada. And I just think people piled in, and if they thought about the risk, they didn’t take it seriously.

Roma: Now, 2023 has been a lesson in exactly how volatile mortgages can be. We know well that Canadian homeowners are struggling under the weight of higher payments right now. What is the outlook for mortgages? When do you think they’re going to come down?

Rob: Well, you know, we see things in financial markets in late 2023 that give me hope that we have seen the worst of rising mortgage rates and that maybe if we could plateau for a while and the Bank of Canada says, you know what, inflation’s under control, we are going to lower rates. I think that would set the table for lower mortgage rates, and it could happen in 2024. So if you’re renewing 2024, that’s hopeful. That’s a hopeful bit of information.

Roma: I think it’s certainly better than renewing at the end of 2023.

Rob: Well, I think the latter quarter of 2023 is almost like the peak mortgage rate. And if I were renewing a mortgage, I wouldn’t want to lock in for any great length of time because I think that we would be very disappointed about that 12 to 24 months from now.

Roma: What’s all this uncertainty doing for house prices? Are we going to finally see a little blip of increased affordability?

Rob: Well, I don’t know. I was reading something from one of the big banks, and it was saying that affordability in autumn 2023 was the worst possible since the 1980s. And for those who don’t remember the eighties, that was when interest rates were at double digits. I think mortgage rates were in the 20% range for a brief period of time.

Roma: I remember my parents panicking at that time.

Rob: So that’s just a long way of saying affordability is pretty bad, and the only way we get improved affordability is a) a decline in mortgage rates or b) a decline in housing prices. And I know it would be awesome to get both, but I think there are a lot of people who think if mortgage rates go down, that will invite more people to get into the housing market, and they’ll bid prices back up again. I don’t know if we get a recession. I think we might just get lower mortgage rates and lower housing prices.

Roma: Okay. So, is housing a must-have financial commodity, that entrenched idea that Canadians have that housing can’t fail? Is that notion finally going to take a beating?

Rob: See, I love that question because I keep thinking, oh, is it cracking? Is it cracking? And I see no sign of that. I think everybody thinks we’re in a pause right now, and the housing market will just start galloping ahead as soon as conditions are. Right. And, you know, housing has repeatedly done that through every economic setback of the past dozen or so years. Housing has pause briefly and then run higher. I don’t know if it’s going to happen this time. We’ll see.

Roma: What’s your advice for young Canadians listening to this? Should they stretch to buy a place, you know, put all their eggs in the housing basket, or is it time to, you know, abandon the housing dream and work on some other financial goals?

Rob: I think that telling people to abandon the housing dream is bad news, harsh news, and I don’t think there’s any receptiveness to it. So, what I would rather do is just map out a way to get into the housing market. And what I would say is start positioning yourself now for an opportunity ahead. It may not come, but be ready if it does. If prices go down and mortgage rates go down, be ready to jump in. So, a couple of suggestions. Guard your credit score. I mean, that is going to be a huge determinant of what kind of a loan you get for a mortgage. Be careful about that. Cut your other debt because that will influence how much you can borrow. Use a first home savings account as the core of your down payment money. Save aggressively. I mean, if you want to own a house and you see that the next 24 months might be a time for you, I think you need to repurpose a lot of your money into home savings. This could be go time. I don’t know what’s going to happen, but there could be an opportunity out there.

Roma: Okay. So, for those Canadians who do have some money saved, where should they be keeping it?

Rob: So if you’re saving for a house, safety first. So, a high-interest savings account is where you put your money. Most recent numbers that I’ve looked at say you can get about 3.5 to 4% on bulletproof savings. That’s where you’ve got to put your money. Do not put it in the stock market. You could win, or you could see your money annihilated by 30% in a bad month. So stay safe and take advantage of the pretty good rates we have right now on risk-free money.

Roma: Okay. So, looking ahead to 2024, with high-interest rates, high inflation, soaring rents, and an uncertain job market, what do you think? Are we in for a recession?

Rob: I think so. My prediction is that it will happen. I don’t know how severe it will be. And one thing I want to point out to people is that we get recessions every now and then. They happen. Economies can’t grow indefinitely. You need to have a reset. And we’re getting one sooner or later. I think 2024 could be the year.

Roma: Rob, in the first three or four seasons of Stress Test, we were constantly talking about how attractive interest rates were and how many people were trying to buy homes. There were bidding wars, there were frenzies. Now, we pivot to where we are now. And interest rates have soared. Higher mortgage payments are through the roof. But if you want to buy a home, you can. So is one of these preferable to the other?

Rob: I think they’re both extreme, and they’re both undesirable. You know, there was too much frenzy, and now there’s too much pain. So, I think we need to remember back to 2019, which was a very bland average year in personal finance. You know, interest rates were low but not rock bottom. Inflation was there, but it wasn’t really an issue. House prices were high, and people were complaining that they were unaffordable, but they were going up 20% year over year, and everything was sort of holding together. Everything we’ve seen in the past couple of years has been extreme, up, down, sideways. It’s all been jaw-droppingly strange to people. And I’m looking forward to the economy of normalcy, where everything is in its range of normalcy. And we can stop obsessing about every change in rates, about every change in the housing market, cause things are coasting for a while.

Rob: Next up, I speak with Globe reporter David Berman on his popular story about a recent drive from Toronto to Montreal in an electric vehicle as he lays it out. EVs might save you a little money, but certainly not time.

David: About midway into our drive from Toronto to Montreal during the March break, I stopped to charge our electric vehicle at a rest stop along the highway. Life seemed pretty good with an EV at that point in our journey. We were already saving a bundle on gas, and it was easy to find an available fast charging station when we needed a boost. But little did I know that dissatisfaction was brewing among my passengers at the next stop, which was also to charge. They got a little testy. My daughter piped in from the backseat with a couple of pointed questions. Can we go? She said. What are we waiting for? We’re charging. My wife told her those few lines to find our 550-kilometer drive to Montreal, which took, I’m embarrassed to admit this, nearly 8 hours. Yes. One way.

Rob: The Globe readers are clearly very interested in EVs, but the popularity of your story suggests that they are very much, in fact, finding mode. What can you tell people about life with an EV?

David: Well, first off, I’d say I enjoy my EV thoroughly. I’d never go back to an internal combustion engine. Never, ever. So I’m 100% sold on it. But that’s not to say there are some sort of downsides to owning an EV. And I’ve realized over the last year and a half of ownership there are some things in EV that will do well and some things it won’t do so great.

Rob: Give me a couple of highlights and a couple of lowlights.

David: The highlights are easy. I mean, we are saving on gas. I can Idle while waiting for my daughter at ballet class without worrying about emitting fumes. The downside is if you drive and, you know, probably get into this a few more details. But if we drive for a longer distance, say more than two or 3 hours, then you do have to factor in considerable extra time for charging. I think that’s the biggest downside. The other one you just have to get used to is you can’t assume that there’s going to be a charging station when and where you need one.

Rob: Now, looking ahead, there’s talk of price cuts for EVs because demand isn’t soaking up all the EVs being made. Do you think this argument is now to wait if you want an EV?

David: I think there definitely is an argument to wait. Yes. Prices are coming down at the same time the technology is improving. Car manufacturers are coming out with newer, better models all the time. There’s greater efficiency. It’s all good. That said, I think if you need a car now, EVs are a great option because of what I said. I mean, they’re fantastic to drive, They’re energy-efficient, they’re clean. And if you’re thinking of making the shift from an old gas guzzler to an electric car, I mean, now’s not a bad time to do it if you need a new car. If you don’t, I just wait.

Rob: Did you benefit from any financial incentives to buy an EV? And do you anticipate governments providing more incentives as they try to meet their targets for getting people into EVs?

David: I did get an incentive. My incentive was a $5,000 rebate from the federal government. There was no incentive from the provincial government in Ontario, unfortunately, and there was no incentive to put a charging station in my home. So it was $5,000, and that was it. That did help me make the decision to go electric. It was just that extra little boost to kind of get me over that that that line. And it did it did help financially, for sure.

Rob: As a personal finance guy, I have to say I’m kind of horrified by how much people are spending on cars. For example, average monthly payments are up close to $1,000. People are stretching these loans out over seven years with EVs. I know they’re comparatively expensive to buy but talk to me about the cost of owning them, fuel, and maintenance.

David: That’s an answer that’s still in development as well because I’m two years in. But from what I’ve calculated and from what I’ve experienced so far, you do have to subtract various cost savings from the actual upfront cost of a car. So, in my case, my car was listed at $50,000, and I calculated, based on my driving habits, that I would save at least about $1,000 a year on gas. That’s net electricity costs. So over ten years I figured I’d save about $10,000. So I took that $50,000 price, knocked off ten, and I got to 40. And then, in terms of maintenance, again, I’m early into this, but there are fewer moving parts. There’s no oil to change unless something catastrophic goes wrong that’s not covered by a warranty. I figured I’m pretty good at saving a few bucks on maintenance. And so I kind of whittled down that $50,000 starting price down to about 30 35,000, which is still, you know, a pricey car, but it’s a lot better than the 50,000.

Rob: And while I think the average vehicle price in Canada is like well into the $40,000 range, so you can you can compute it down to 30, that’s actually quite reasonable. Dave, we did an episode of Stress Test on EVs a while back, and at that time, EVs were sort of something that you would consider if you were technologically savvy or you were really concerned about the environment. They weren’t sort of a mass-market product quite yet. Do you think we are there now? Are EVs suitable for the general family?

David: They’re more suitable for more people. They’re not quite there for everybody yet. There is a steep learning curve with an EV. I used to kind of half joke that it’s it’s like handing a laptop to somebody in the 19th century. In some cases, there’s a lot to learn. They operate quite differently. They’re still steering wheel on a brake. But, you know, apart from that, everything is pretty much different. So you do have a lot to learn. Charging is very different. The infrastructure is very different. So they’re definitely not for everybody. But whereas it may have been for these cars may have been best suited for tech enthusiasts and hardcore environmentalists a few years ago, I think they’re broadening out in terms of who they can appeal to. And I think they I think most people should give them a serious look that they’re not for everybody, though.

Roma: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Anna Stafford, and Emily Jackson. Our executive producer is Alisha Sawhney. Thank you to Globe reporters Erica and David for joining us.

Rob: You can find stress tests wherever you listen to podcasts. If you like this episode, please give us a five-star rating and share it with your friends. Next week on Stress Test, we discuss some personal finance self-care resolutions that can set you up for the new year.

Roma: Until then, find us at the Globe and Mail dot com. Thanks for listening.

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