Blessed by the Potato

Because I obviously need more crap in my life right now, my desktop died last night. I have a laptop so I’m not completely cut off from the world, but it is still a massive pile of suck. I’m pretty sure all the important stuff on the computer was backed up (and the drives should still be working anyway), but it’ll take time to get going again.

So on top of the other reasons for me to be bad about replying to stuff, there’s this.

Update: It’s alive!

Wayfare just got home after 14 consecutive days in the hospital (plus 3 of the 5 before that). It’s a serious disease and she’s doing much better than she was two weeks ago, but that’s mostly a reflection of how sick she was — there’s still a long way to go to full health and stamina. As an illustrative example, she can walk a few steps unaided now, but still feels the need for someone to support her going up and down the stairs.

Though it was a long stay in the hospital, she’s glad to be back just in time for the trick-or-treaters. She couldn’t get up and walk to the door each time, and didn’t want to catch anything with a suppressed immune system, so she bundled up under about a hundred layers, added a stethoscope to her face mask and gown to look like a doctor, and planted herself on a chair at the door to hand out treats. Priorities, you know. She’s also amazed that fall waited for her — here in Toronto I still haven’t had to rake yet as most of the leaves are still on the trees, some still green even.

But enough about her. I’m exhausted. Everyone has been great at offering support, especially her parents, who have been there in the hospital with us every day, and picking Blueberry up from school regularly. While we spent hours waiting at the pharmacy before getting to leave the hospital, her mom came over and cleaned everything, and then went out to help restock groceries and hand sanitizer, etc. But there are some things you just can’t outsource — Wayfare really didn’t want other visitors, especially when she was barely lucid and had tubes coming out every which-way. So I went downtown every day, tried to get an hour or two of work done to keep my job, and tried to hold it all together. Near the end of the hospital stay, Wayfare was thanking me for doing all the things, and said that perhaps the worst part of it all was that I had to commute down on the weekends too. And I think that is definitely part of why I feel so worn out right now — at least with big projects that lead to 80+ hour weeks, I get to work from home on the weekends.

Anyway, we’re not quite out of the woods yet. Fortunately, I should be able to work from home for the next little while to be here while not getting fired, and her parents continue to be awesome. We’re going to have to spend a day every week in the hospital for follow-ups to monitor her recovery. Unfortunately (and touching wood, spitting and turning around three times, etc. as I say this), this disease has a staggeringly high recurrence/exacerbation/relapse rate. So almost any instance of Wayfare not feeling well will be a trip to emerg to check things out, just in case. Though she finished her plasmapheresis, her central line will stay in for a few more weeks because of this danger. And that is itself a pain to manage (not to mention the creepiness factor — though in the right light it’s good progress to a rockin’ Borg costume).

And with her energy levels so low she’ll need someone here basically all the time, and it will be a while before she’ll be able to pick up Blueberry from school.

Blueberry has been just amazing through all of this. She’s written/drawn so many little get well soon notes and cards for mommy, and she’s been quite good with me (and fairly understanding when daddy’s patience is a little shorter than normal). And she’s been so good being gentle and helpful and considerate with her mom. One good thing out of all of this has been all the time I’ve gotten to spend with her. I’ve been walking her to school almost every day since she started kindergarten (for other somewhat related reasons), and now I got to pick her up most days too — and will continue to have that for a while yet. Though as much fun as all the daddy-daughter days have been, she’s awful glad to have her mommy home again.

Every now and then my mind wanders to what will happen long-term (particularly through the PF blogger lens). We have a good emergency fund, so I know at this point I’m just borrowing trouble, and there’s enough to deal with now. I’m glad money doesn’t really have to be a big concern, and that we’ve had so much support from family, which gives us the freedom to push these kinds of thoughts off until after the medical stuff is resolved. But still — we are not one of those PF uber couples that can live off just one salary. It’s been a while since I’ve done a detailed budget, but for the sake of argument let’s say that we need about $1.5-2.5k/mo (depending on how much we cut lifestyle spending, and not counting savings) from the 2nd person’s salary to live here. A friend recently moved, so on Facebook I saw the posts about her house and I was like “yeah, we should move to London!” — lower costs of living (nearly to the point of fully living on one salary), and instead of being an hour+ away at work, I’d only ever be at most 10 minutes away (20 if there’s a fucking train crossing) if something happened, and I’d get that much more time with Blueberry on all the days when nothing happened. Of course, then the thoughts spiral to how much help we got from family through this, and they probably wouldn’t follow us out (though Blueberry is the only grandchild on both sides, so maybe??). Anyway, we can put that crazy thought process on ice for a few months at least — and while it may take a few months, Wayfare should eventually be able to return to work.

Asides:

It was tough trying to keep everyone in the loop. Social media is good for that sort of broadcasting thing, but Wayfare didn’t want me broadcasting too much to too many people online at first. She wanted to write something herself, but was too foggy to be able to write. So many people knew she was “sick” (esp. with cancelled events and the like), but didn’t know she was in the hospital with a serious condition. We were getting messages like “should I bring over soup?” Finally I asked her how much murdering she would do to her friends if one of them disappeared into the hospital for days and didn’t update her, and she let me send a message out on her account.

Other than that I didn’t really provide much detail to too many people — lots asked, and I gave brief answers (or pointed to posts), as keeping other people in the loop much beyond “this is a thing and it is happening, chat later” was not very high on my priorities. The old-fashioned social network also worked well — I told my mom what was going on, who told my aunts, who told my cousins, and on through the phone tree.

I alluded to being short-tempered above with Blueberry (only a tiny bit, but I’m usually super patient with her) — I was much more so with other people. One text message exchange went like this: “Happy birthday!” “OMG FUCK OFF right now.” [exaggerated] Imagine driving to the hospital and your phone pings. Is something wrong? Do you have to stop and pick something up on the way? Is there a safe place to pull over and read it? Is it worth the safety and ticket to try to read it while driving? Maybe just risk the ticket at a red light… Oh great, a birthday wish, like I care about that now.

Sharing bad news of a personal nature is sometimes easy on a blog (especially if there’s a good story behind it or its cathartic), and sometimes hard. Today it’s hard, but I want to let people know why I’ve dropped off the face of the earth. I’ll likely tell a fuller account of all this at some point in the future (esp. after I run it by Wayfare).

The short version is that Wayfare has been very sick, in-and-out of the hospital over the last week, until on Tuesday they figured out that she has an incredibly rare and mysterious blood disorder and admitted her to the ICU. She will be in the hospital for at least another week, likely longer, and even once out she’ll be making regular trips back downtown for specialized treatments that will take hours at a time.

Because I can’t seem to turn off the personal finance blogger in my head, I can’t help but be glad that we have a big emergency fund. There may be existential issues ahead about the cost of living in Toronto and the loss of several months worth of income (or possibly permanent changes to work structure) for at least one of us (and likely both), but we can afford to just deal with the crisis phase of this now and not worry about money for a few months — we’ll cross that bridge when we come to it. I’m also glad that I have a fucktonne of time banked at work, so I just walked out when this was happening. I’m sure there’s some kind of compassionate leave program that would have helped out here, but it’s just easier to say “surprise vacation!” and put off having to look into any policies or do any paperwork for now.

For those enrolled in the course, unfortunately it is not looking good for timely completion in November. I had originally booked a few days off work over these couple of weeks specifically to finish shooting video for the course — so in terms of timing for such a tragedy, it wasn’t as bad as it could have been (though never would have been the preferred timing) — and obviously that’s not happening right now, and I don’t know if I’ll be able to make up the lost time in November.

Blueberry has been just fantastic at dealing with all of this so far, though we’ve all been spoiling her rotten when the grandparents pick her up from school or I let her get away with murder at tuck-ins.

I think I have managed to respond to all the emails sitting in my inbox, even if it’s only with a quick “I have not read this and will get back to you later.” If not, this post will help explain where I’ve disappeared to.

If you had asked me in 2011 or so, I would have gone on at length about how critical CMHC (and Genworth) mortgage insurance was to fueling the housing bubble in Toronto and Vancouver. Heck, you didn’t even have to ask me, I would have told you anyway. Having to save up a downpayment helps to make the system more robust, and acts as a brake when house prices start to rocket higher as people can’t save fast enough and get priced out. Mortgage insurance circumvents that, and lots of people were buying with minimal downpayments, thus it had to have been a big causal factor in the bubble.

In 2012 some reforms were announced, including that mortgage insurance would be capped at $1M house value. It was no 10% downpayment minimum like I was hoping for, but I thought that would help cool the market by providing an upper limit to the insanity (at that point the average Vancouver detached house had already crossed $1M, and the average Toronto one was a bit shy, but many neighbourhoods were over).

For a brief while you could see the strange behaviour as lots of houses that may have fetched prices ranging anywhere from $800k to $1.1M were all compressed into a narrow band near $990k. I thought a few more months of that and a few people with downpayments would push a bunch over $1M, and those without downpayments would have to exit the market, and the correction would start. I was so wrong. Before you could even take MLS screenshots and write a blog post on the strangeness, prices started rocketing higher again, and $1M was no kind of barrier at all.

And then the truly puzzling stats started coming in: Canada’s two most bubbliest cities had the highest downpayments. Roughly two-thirds of buyers across the country were tapping CMHC, but it was Toronto and Vancouver that were pulling the average downpayment up.

The bank of mom & dad was by and large saving the day. CMHC insurance became but a minor factor in Toronto and Vancouver’s housing bubble.

This is troubling because it meant that things had gotten away from the government’s ability to control via CMHC reform unless they went nuclear (i.e. 10-15% downpayments, not this wimpy sliding scale tweaking stuff — more on this below). It’s also troubling because many a First National Bank of Mom and Dad gets its financing from HELOCs, and that’s very pro-cyclical — it’s easy to get a HELOC while prices are rising (and indeed, you can fool yourself into thinking you have to and that it’s good for your kid to do so), but that source gets turned off when the bubble bursts, making corrections worse. It also masks the vulnerabilities in the system, making it look like we have a bunch of borrowers taking out ~20% of their equity and some buying new with ~20% down when really it’s more like a bunch with paid-off houses and a bunch with nothing (the total equity may be the same in both cases, but the latter group is much more likely to blow up).

[And to add, the other answer is “foreign money” which may be a bigger component of the market than I thought, but still doesn’t change the answer as to whether you should buy or rent — as we’re now seeing]

So that brings us to today, with some new rules from the Finance Minister. What’s interesting here is that a lot of the previous rule-tightening moves for CHMC didn’t apply to insurance that the banks took out on mortgages with over 20% down.

Aside: Why would they do that? So that they can securitize the loans. From the data I can find, roughly a third of all mortgages issued in Canada end up insured and securitized.

Now, loans used for portfolio insurance must meet the same criteria, plus the new criteria, particularly the closing the 5-year filter on qualifying rates.

Aside: a while ago the rules were changed to try to be more conservative so borrowers had to qualify at a higher rate — based on posted rates — than what they were to pay, to ensure that buyers had the financial flexibility to take on higher interest rates. However, if you went for a 5-year term you didn’t have to go through this check and could just use your contracted rate. This pushed many people into getting 5-year fixed terms (vs. variable-rate mortgages), and created incentive for the banks to make their 5-year fixed discounted rates their most intense point of competition.

So now there’s going to be an effective $1M cap on securitized mortgages (it’s possible to securitize and sell mortgages without insuring them but that largely doesn’t happen because Bad Things Happened and the market for that kind of product is dead — lookup ABCP). It will likely also spell the end of longer-than-25-year amortizations (which could still be had for people with more than 20% down).

That means any bank making a loan in Toronto or Vancouver where so many places go for over $1M is going to have to keep that jumbo loan on their books. No more moral hazard from passing it off in a securitization.

We’ll see how these changes affect the market in the coming months and years. Maybe this less-obvious change will have big effects. Maybe the market is already rolling over so it won’t matter. Maybe the meme is broken.

For the qualifying rates, the difference can be somewhat meaningful for those who are stretching to the limit. If you make $100,000/yr and can borrow up to a GDS of 39%, that means your maximum monthly payment for the mortgage and a few other costs (tax, heat) is $39,000/yr ($3,250/mo). If you take off say $400/mo for heat and property tax, that leaves you with a maximum mortgage payment of $2,850 on that income. With the 5-year filter you can use the actual rock-bottom rate of 2.5% to qualify, letting you borrow about $630k. At the qualifying rate of 4.6%, that takes you down to $510k — a fair bit less room to reach.

There are few ways the banks can respond to this. They can reign in lending (clearly the intended approach). They can say fuck it and put the pedal to the metal and just keep all the loans on their books. For the qualifying rate, that comes from the “posted” rates the banks put up. It’s not likely that they will lower the posted rates to circumvent the stress tests (those higher rates help them rake in interest rate differential fees when people break their mortgages and it’s low-hanging fruit to get people to renew at higher-than-market rates if they don’t shop around), but that is an option. Of course in that case the government can just specify a qualifying rate.

Also today Preet released his interview with Ben Rabidoux which is a good listen that touches on many of these issues (though it was recorded months ago).

An important topic they discuss is the rise of private mortgages (aka shadow banking). Now, an incredibly, impossibly stupid thing has been allowed to happen: people are expected to put no-condition offers on places in bidding wars in our hot housing markets. So every now and then (though surprisingly less often than I would have thought) someone can’t actually get prime financing like they planned, so they get a private mortgage to cover the gap. Or someone will get into trouble, and tap the private mortgage market.

Every time the government tries to tweak prime banking and CMHC just a little bit it does not work to cool the market, because the changes are too marginal. Instead they push a few more people into borrowing from mom & dad or private lenders, and normalize that whole system and alternate ways of qualifying. This approach is doing less to cool the market than it is to build the shadow banking infrastructure. That’s part of why¹ I think we shouldn’t keep trying a series of small nudges to CMHC and lending criteria, and letting the system build resistance to regulation. We’ve got to rip the band-aid off and punch the speculators in the nose.

1. The other part being that I am actually Ra’s al Ghul and believe that the bubble can’t be saved so we should just get on with purging the city.

Recently I got an email from Chris (his mailing list is actually good, BTW). He includes these neat sketches to try to understand his money and see things in a new light. A few weeks ago was one on his money infrastructure, which I’m hoping he’ll turn into a post for non-subscribers to see, but the one I want to touch on this week is a sketch of his irregular income through the year that he just sent out. It’s basically a bubble chart (though he uses squares instead of bubbles), showing how his confirmed income varies through the year.

I saw that and thought neat, this is presenting some information in a way that will make people think.

I then thought “this can be presented differently, especially if I would want to use this information to plan my freelancing activities.”

In that figure, he has as his independent axis (x-axis) “time available to make money”, with the months scattered all around, and expenses running up the left side. But you can immediately see a strong relationship between the size of the boxes (committed income) and time available to make money — when he has less committed income, he has more time to make money, which is not very surprising and perhaps not what you want to take away from the chart.

Instead of scrambling the months, we can rearrange it chronologically.

He also has expenses and income as separate variables for each month. Sometimes it’s useful to think about those as separate things, especially when you can attack them from either side. But if you’ve more-or-less figured out your expense side and want to focus on making more money (as the initial x-axis implies), we can instead plot the difference between expenses and income — when are the shortfalls? How do the shortfalls line up with opportunities to make more money? Are there blocks or are they one-off months in islands of pre-committed business?

So now with net income, time available, and time through the year plotted I could use this layout to start planning my side business activities.

As Chris, I could see that from November through February I have a large shortfall in budget, and a decent amount of free time, so this period I’d try to book up with freelance work, with some possibly spilling into March to wind-up (and I’d have to be done for the big Opera period in April). Then in May some time opens up, but the motivation to get stuff going won’t be high as there will still be positive net income. However, there will be minor shortfalls all through the summer with lots of time to spare, so assuming that Chris needs to account for lead time to book clients, he would use the time in May to do that business development, and then work freelance lots through the summer. Then come October, Chris really will have no time to spare, so booking business for the Nov – Feb period will likely have to wait until November (and even then the time is not as open). That means he’ll need to budget to deal with that big shortfall expected in Nov, as it’ll take some time for the freelance income to pick up then.

So here I’ve abstracted away a variable — I’m assuming that I’ve already dealt with planning my [Chris’] expenses, and am trying to visualize the data in a way to help me manage a freelance career on top of a singing career. And this may be a more useful visualization for that particular problem.

But that doesn’t make this a better general approach. After all, some of Chris’ expenses may be variable and flexible, and he would want to plan out when to schedule those based on when there will be money in his accounts after paying gigs, and when he will have time. In that case he’ll want to see income and expenses separately — indeed he may want to collapse income and time available to focus on time through the year and then have different bubbles overlaid for different kinds of expenses. Then he could plop some expenses in different places to see what would fit best for him. For example, he may want to schedule his dental appointments in November and May, when he has time and money after his busy October and April gigs. And indeed, he had just such a visualization sketched out when I chatted with him about this.

With some things in life, especially personal finance, there are many more ways to look at data and to try to present it in ways that help guide different decisions. I’m trying to make use of this more in the course — there’s lots of line and scatter graphs, but also a few simple sketches and pictograms with bunnies. But there’s lots more room to go, and I’m excited to see other people sketching things out in different ways

Anyway, stay tuned to ragstoreasonable as I’m sure Chris is going to come out with some neat visualizations and sketches soon (peerpressurepeerpressurepeerpressure).