“the ability to borrow your brains out, unprecedented leverage, and a debt that will probably never be repaid”
Here’s a Macleans article from Feb 2010 on Canada’s housing bubble, that says over the last two decades Canadian mortgage debt has almost quadrupled, and credit card debt seems to have essentially followed suit.
ETA: Here’s a useful tid-bit
I wonder what percentage dopers are saving. Sounds like a thread idea.
Okay - Median for Greater Vancouver in 2010 is $750,000.
Now one stat that does conflagrate the whole thing is that renters aren’t included in the house price numbers, but are in the incomes… but I believe those are also in the debt-to-income numbers.
I used statscan numbers for income and CREA numbers for housing… I found a source of medians and will calculate away…
Couple of points about Vancouver housing:
Most news articles completely screw up the difference between mean and median house price and often use the terms interchangably. Yes, you are quite right that the mean can be skewed high by some high priced sales. This fact is quite lost on most news reporting organizations.
Vancouver City prices are much higher than Greater Vancouver Prices. - News organizations often report Vancouver house prices and fail to disclose that they are not including Surrey, Burnaby, New Westminster, North Van etc., which all have lower mean and median house prices than the City of Vancouver.
Where did you find the median price of $750,000 for greater Vancouver? I looked at the CREA site, and all I could find was This page that told me that the October 2010 AVERAGE price for VANCOUVER was just over $707,000
The median price for houses is almost always LESS THAN the average price, due to a few very expensive houses pushing the mean up.
I hope taking Garth with a grain of salt isn’t naive. He does make some sense, though. Scary stuff - I’ve been reading that on and off for a while. I asked him a question a couple of years ago, and got my question (and his one-word reply) added on to one of his posts - wasn’t the nicest, but he was probably right…!
MLS - but as of May. That may be coming down…
Nevertheless. The point stands. A Vancouver family who makes $70K would be owning a $650K single family home. They could have bought the thing for less. In the event they could get themselves down to a mortgage of 50% of the present value, their ratio would be almost 500%.
I definitely take him with a grain of salt. High real estate prices in places like Vancouver and Toronto are not simply a product of easily available credit and the average school principal’s housing greed. They are the product of a bunch of market factors, many of which he has not bothered to mention, or doesn’t know about - like the fact that a good percentage of the high-end real estate in Vancouver is being bought up by Asians as investment property; and the fact that city populations in these cities are much denser today than they were in the 1950s.
Certainly, cheap credit has its impact - along with much else. He’s blaming one factor when many are at work.
I definitely take Garth Turner with a grain of salt, but the bit that I bolded is hardly reassuring.
I live in Waterloo, ON. This past summer I briefly looked into buying a condo. But as soon as I started running the numbers, it immediately became obvious that it just didn’t make any financial sense. To buy a condo in a comparable location to my current apartment, my mortgage payments would have been something like twice my current rent(admittedly, I was looking at a shorter amortization period). Even with a standard 25 year mortgage it would have been something like 46% higher than my current rent. And that’s without considering condo fees, taxes, whatever. I could have afforded it, but it would have been near the edge for me, and that’s with the historically low interest rates we’re seeing today. And then I got to thinking: I’m making a really, really good income for somebody my age. Who on earth was I supposed to sell this condo to in a few years’ time? How much could I possibly expect it to appreciate by?
Instead, I’m plowing the money I’m saving into mutual funds.
And the type of person that I think that is really worrying the BoC is not people like Leaffan(who’s really in that situation through no fault of his own), and more people like this:
I really feel like I’ve seen this movie before, and it scares me a little.
For no good reason except it’s fun to brag about this; we have no household debt and haven’t had any since Ms Hook retired December 1, 2008.
Well, there’s what ever is on the card. But that’s paid off every month.
I’m not saying that it makes financial sense for everyone to buy real estate, only that his account of what is happening in the market is skewed.
The fact that Asians are buying up investment properties could in fact be a sign of a bubble - presumably, if conditions change, they could all be just as anxious to sell them again - but OTOH, it is a factor not necessarily dependant on financial conditions in Canada. It may be more dependant on conditions in Asia (particularly, China) which make Canada seem a safe haven.
Another, quite seperate factor is the increasing density in places like Vancouver, Toronto, and Southern Ontario generally. If this is a trend likely to continue, it may work against the notion that this is an unsustainable bubble.
I’m of two minds on this issue. There is no doubt that historic low interest rates are fueling speculation, which points towards a bubble. OTOH, in Toronto at least, I’ve been hearing that real estate is in an unsustainable bubble for the last decade. Maybe that means we are due for a massive pop, I dunno. From 2000 through 2005, I refused to buy, on the basis that house prices had to implode; that was the conventional wisdom at the time, by those knowledgeable about financial matters - plus I wanted to save up a big deposit. But prices kept increasing. Finally I lost patience and bought - and everyone I knew had a good laugh, thinking I was buying at the top of the market … but in my area, prices simply continued to increase. Then came the great recession, and I thought that, surely, there would be a correction now - but prices simply stagnated for a year, and then continued to slowly increase.
Since 2005, the average price in my area has increased 20%. That’s not exactly an earth-shattering ROI, of course. But what it is, is a massive decrease in affordability. I could afford the house I bought in 2005 - I didn’t go out on a financial limb. I could not afford the same house in 2010, without going out on a limb. If I was to wait until 2015, will there be a great correction, and could I afford that same house (assuming no salary increase)? I dunno. It is certainly possible.
The issue is whether that increase is truly the result of a bubble, or whether this particular location is simply moving out of the financial reach of the average person. The Globe released a map of Toronto the other day, showing that the city is quickly splitting into “have” and “have not” areas - the middle class is being squeezed out.
I’m in Waterloo too, and I tried to run the numbers about 6 months ago when I was moving from a shared house to an apartment on my own. I was seeing a lot of very crappy apartments for $800+ a month and wanted to see if purchasing a condo made sense. Even if I plowed all of my available savings + emergency fund into a down payment I’d be spending way more on mortgage+fees than on rent.
Fortunately I found a good condo for rent, and I think I’m way ahead renting and putting the rest into my TFSA. I don’t see how it makes financial sense to purchase in Waterloo at the current price:rent ratio; at least for condos.
I’m not sure the correct formula is mortgage + fees = rent. There has to be at least some allowance for the fact that a percentage of your mortgage is actually being converted into equity.
Equity, as I’m sure Mr. Turner would be the first to point out, is not an ideal investment. It is illiquid, for one, and its value does not increase historically as fast as other investments. But it still ought to be considered as part of the formula.
Oh sure, but I didn’t include any maintenance or taxes either. Ideally, from a landlords pov, rent should cover mortgage, taxes, fees, maintenance + profit. If rent = mortgage + fees only will your growing equity cover the additional amounts spent on property taxes and maintenance?
Not to go into too much personal financial details, but using an identical unit that recently sold in my complex at 20% down and 30 year amortization the mortgage+condo fees is just barely more than my rent. Go with a more traditional 25 year amortization, higher interest rates, or lower deposit and things look even worse.