In 2008, a former colleague of mine attended a real estate conference in the United States. He returned convinced, and eager to convince the rest of us, that Canada was on the precipice of a massive Real Estate correction – just like the one that had enveloped our southern neighbour. It was a gloomy forecast, and as someone who had hitched his livelihood and financial well being to the real estate wagon – not one I enjoyed listening to. His reasoning however, was little more than a belief that all trends start in the United States, and eventually migrate north. While that may hold true for fashion and pop culture, Real Estate has proven to be a different animal. Some of our good fortune may be attributed to our banking industries conservative monetary policy, but some may also be attributed to a difference in our financial DNA. There is no clearer example, than Ben Bernanke, former chairman of the Federal Reserve.
The Chairman of the Federal Reserve it could be argued is the most powerful person in the world, at least from a financial perspective. The Federal Reserve sets interest rates in the United States, which remains the financial elephant the rest of the world is sleeping with. The chairman of the reserve, is well paid earning roughly $200,000 annually. Former chairman Ben Bernanke, recently lamented in a speech (for which he now commands a fee of $250,000) that he was unsuccessful in a recent attempt to refinance a mortgage on his home. The comment was designed to illustrate a point for his American audience – that mortgage regulations had become too stringent. After all, if HE could not secure credit, who could? There was however, a collateral point, one that I think would resonate more vibrantly with a Canadian audience: why is it that the man controlling the purse strings of the free world – a man with an annual salary of $200,000- a man commanding speaking engagement fees of $250,000 – a man, now 60, who had in all manner realized the American Dream – have a mortgage at all? The answer points to a different mindset. As a generalization, Canadians have traditionally believed mortgages were something we endeavoured to pay off. Americans on the other hand, seem predisposed to believe mortgages are something to increase. Witness the advent of the reverse mortgage.
Fred Thompson, former long time United States senator and minor league actor may now be best recognized to late night television viewers as the avuncular pitchman for American Advisors Group (AAG) -an Orwellian name if ever there was one. Thompson, is a perfect pitchman for anything. His voice is reassuring and his demeanor calm. He seems to have particular credibility amongst seniors, which makes him the perfect candidate to sell AAG’s primary product – reverse mortgages (removing the equity from your home on a monthly incremental basis). Despite the fact that a reverse mortgage is to financial planning as bacon is to a diet – Thompson would have you believe you’re eating Kale Salad, or as he puts it, a ‘safe, effective financial tool’. What makes Thompson so convincing I believe, is that, like any good salesperson, he himself appears convinced. Either that, or he is a more than just the minor league actor I credited him as. Reverse mortgages are available in Canada as well, but they have not caught on like they have in the States.
We have all heard the adage, ‘when the US coughs, Canada catches a cold’ – and there is certainly a lot of truth to that as our economies are inextricably linked. However there are differences in our cultures, that appear to have protected us to some degree from the economic ailments that have hampered the American housing market. Eleventh grade physics taught us that for every action there is an opposite and equal reaction. The height of our highs are matched by the low of our lows. During good times, it is easy to lament that our highs do not reach American standards. Nor however, do our lows reach as low – and for that I am grateful.
Thanks for reading,