Housing Affordability

Leveraging, renting vs owning, making an investment or buying a home?
Post Reply
User avatar
CROCKD
Gold Ring
Gold Ring
Posts: 2809
Joined: 15 Aug 2008 16:59
Location: GTA

Housing Affordability

Post by CROCKD » 21 Nov 2017 16:35

A review of affordability across Canada using the metric of Average Resale House Price to Gross Household Income.
The middle-class wannabe homeowner in Toronto and Vancouver
Of major cities Calgary and Montreal are a little above the desired ratio of 3 times but Toronto and Vancouver are way out of reach.The table at the end of the article also shows the spillover effects from these markets on Hamilton and Victoria.
" A verbal contract isn't worth the paper it is written on " Samuel Goldwyn
"The light at the end of the tunnel may be a freight train coming your way" Metallica - No Leaf Clover

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18841
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Affordability

Post by AltaRed » 21 Nov 2017 17:07

Except Rob is very sloppy in his Econ 101. He has not addressed that the old ratio of 3 was based on a period of time of much higher mortgage interest rates. The better measure would be to include the impact of 3% versus 8-10% rates of yesteryear. I know Rob is simply comparing 2015 and 2017 but he doesn't qualify his multiple of 3. Sloppy and lazy writing... me thinks.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

User avatar
CROCKD
Gold Ring
Gold Ring
Posts: 2809
Joined: 15 Aug 2008 16:59
Location: GTA

Re: Housing Affordability

Post by CROCKD » 21 Nov 2017 17:22

A good point but whether a higher ratio as a result of low mortgage rates should have been used, it does show the relative affordability of various cities and shows that Toronto and Vancouver are seriously in the unaffordable range for many people.
" A verbal contract isn't worth the paper it is written on " Samuel Goldwyn
"The light at the end of the tunnel may be a freight train coming your way" Metallica - No Leaf Clover

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18841
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Affordability

Post by AltaRed » 21 Nov 2017 17:25

I agree the chart is about relativity and that is all the discussion should have been about.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

Just a Guy
Silver Ring
Silver Ring
Posts: 400
Joined: 01 Dec 2014 19:28

Re: Housing Affordability

Post by Just a Guy » 22 Nov 2017 09:47

I actually think using the 3x rule is very smart as interest rates have started to rise. People who believe they'll remain low forever, or a rising rate won't have an impact are in for a big surprise...especially around renewal time.

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18841
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Affordability

Post by AltaRed » 22 Nov 2017 12:10

Just a Guy wrote:
22 Nov 2017 09:47
I actually think using the 3x rule is very smart as interest rates have started to rise. People who believe they'll remain low forever, or a rising rate won't have an impact are in for a big surprise...especially around renewal time.
Indeed it is, but Rob uses it in the wrong context. He essentially laments the difficulty in finding a house at 3 times value these days. Well, the reason is patently simple (and he doesn't address it head on). Mortgage rules were relaxed way too far (amortization, LTV, etc) and declining interest rates compounded into increased housing demand well beyond its steady state historical levels. That did nothing but drive up house prices disproportionately and helped no one EXCEPT those who already owned houses . The policy idiots forgot their Econ 101 lessons. Now they are trying to shut the barn door an inch at a time well after the horse has left, potentially creating havoc (at least some pain) in the process.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

User avatar
kcowan
Diamond Ring
Diamond Ring
Posts: 13197
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Housing Affordability

Post by kcowan » 22 Nov 2017 12:43

The fact that the industry did not anticipate the effects of long term low interest rate is a testimony to the lack of financial astuteness in the industry.
For the fun of it...Keith

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18841
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Affordability

Post by AltaRed » 22 Nov 2017 13:10

kcowan wrote:
22 Nov 2017 12:43
The fact that the industry did not anticipate the effects of long term low interest rate is a testimony to the lack of financial astuteness in the industry.
Depends on what you mean by 'financial astuteness in the industry'. The lenders were simply competing with each other to lend, mostly within the rules set by policy makers, albeit there were shenanigans recently with LTV on uninsured mortgages (to be closed Jan 1). Hard to blame them for wanting to stay in business rather than taking the moral high ground.

OTOH, if you think (as I do to some extent) that the policy makers were pressured by the financial industry over the past 15? years to relax the rules in order to sell more mortgages near term (at the risk of future consequences), then yes, they are/were indeed culpable. At one time, I think we had 40 year amortizations, or did it get that high? Or did the insanity stop at 35 years? Then there were those 95% high ratio mortgages. WTF was that about?

Whoever was culpable did nothing but be responsible for the current 'between a rock and a hard place' situation. What is needed is better creativity and variety in housing stock and it is only slowly being addressed.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

Just a Guy
Silver Ring
Silver Ring
Posts: 400
Joined: 01 Dec 2014 19:28

Re: Housing Affordability

Post by Just a Guy » 22 Nov 2017 16:37

You know, the last time I checked, no one forced people to borrow money, nor to bid up and overpay for housing. Debt is a tool, used wisely you can build something. Unfortunately you can also kill yourself with the same tool.

When the housing market got too expensive, I stopped buying properties. It lasted for years because nothing met my criteria of making money long term. Did I miss out on opportunities because prices continued to increase? Maybe, maybe not. All I know is these days there are a few properties I'm picking up because someone else took a bath on it. I expect more as time goes on.

You can't legislate away stupidity, though the government does try.

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18841
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Affordability

Post by AltaRed » 22 Nov 2017 17:53

The vast majority of people 'shopping for houses' max themselves up to what they can squeeze out on a qualifying monthly payment. No different than 7 year auto loans. It is what it is, and it is they that drove up the demand (and thus prices) for houses. It doesn't matter what you or I think. Since you can't fix stupid, the gov't shouldn't have relaxed mortgage rules in the first place. Canadians are, on the whole, no smarter than the stateside debacle pre-2008/2009.

User avatar
patriot1
Gold Ring
Gold Ring
Posts: 4141
Joined: 28 Feb 2005 03:53

Re: Housing Affordability

Post by patriot1 » 23 Nov 2017 20:31

AltaRed wrote:
22 Nov 2017 13:10
At one time, I think we had 40 year amortizations, or did it get that high? Or did the insanity stop at 35 years? Then there were those 95% high ratio mortgages.
It was worse than you recall. It was 40 year amortization 100% financing.

https://www.canadianmortgagetrends.com/ ... drops-100/

SQRT
Gold Ring
Gold Ring
Posts: 1969
Joined: 01 Nov 2012 11:33
Location: Alberta/Ontario/Arizona

Re: Housing Affordability

Post by SQRT » 24 Nov 2017 12:17

Does anyone else remember the “conventional wisdom” of 10-15 years ago that stated big houses would decline in value as baby boomers retired and downsized. Doesn’t seem to be working out that way? Low interest rates, more immigration (anything else?) have at the very least deferred this prediction.

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18841
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Housing Affordability

Post by AltaRed » 24 Nov 2017 12:51

I think it will still happen. It's just that the boomers are not downsizing as rapidly as originally thought. The leading edge is just 70 now. And it will vary a lot by geographic location and local demographics. One of wifey's daughters now in mid '40s and a working professional in Calgary has desires to move up from the more standard 2 storey to something more upscale, but I would not be surprised if they stick it out until early retirement, and then re-locate to a more desirable geographic location.

We have a lot of empty nesters, and early retirees, who are buying the big houses here (mostly moving from other places like Calgary and Vancouver), and those now circa 80 yrs old are selling them. Give it 10 more years and there will be an effect*. That said, there is major resistance here to anything over $1 million, and anything in excess of $2 million still has not recovered to its 2007 peak.

* We bought an upscale house here 5 years ago and might stick it out for 10 more years until we turn 80. Then we will be gone to a luxury condo or retirment resort. Upscale houses are obscene money pits.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

User avatar
kcowan
Diamond Ring
Diamond Ring
Posts: 13197
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Housing Affordability

Post by kcowan » 24 Nov 2017 12:59

In Vancouver, it is rich Chinese and Iranian buyers who are snapping up the properties and have been for 10 years. Also we had a friend who downsized from his 4 BR home to a penthouse. It was smaller but not cheaper. We have another friend who is downsizing from his house to a one floor place in Penticton.
For the fun of it...Keith

steves
Gold Ring
Gold Ring
Posts: 3200
Joined: 01 Mar 2005 15:02
Location: Hornby Island BC
Contact:

Re: Housing Affordability

Post by steves » 24 Nov 2017 13:06

My place in West Van was appraised 15 years ago for $400K. It is now worth $3.5 Mil. Love those Iranians!
Live Rich, Die Broke (but not too soon).

nisser
Silver Ring
Silver Ring
Posts: 850
Joined: 11 Nov 2007 21:24

Re: Housing Affordability

Post by nisser » 24 Nov 2017 13:31

You will get a lot of resistance from people when you claim it's foreigners. We have no good evidence how much of an effect they have but I must be doing something really really wrong if the kids working in Starbucks are the ones affording million dollar houses. :rofl:

SQRT
Gold Ring
Gold Ring
Posts: 1969
Joined: 01 Nov 2012 11:33
Location: Alberta/Ontario/Arizona

Re: Housing Affordability

Post by SQRT » 25 Nov 2017 08:35

It may still happen but the “wisdom” of 10-15 years ago sure missed the recent run up. Even if it does decline (or level off) at some point, it is clear that real estate has been a surprisingly good “investment” since the financial crises, at least in most of the big cities. I’m as surprised as the next guy.

Just goes to show you that the”conventional wisdom” is often suspect or the timing is off. Hence it is of little use.

User avatar
patriot1
Gold Ring
Gold Ring
Posts: 4141
Joined: 28 Feb 2005 03:53

Re: Housing Affordability

Post by patriot1 » 25 Nov 2017 13:10

SQRT wrote:
25 Nov 2017 08:35
Even if it does decline (or level off) at some point, it is clear that real estate has been a surprisingly good “investment” since the financial crises, at least in most of the big cities.
You're essentially saying that RE has been a good investment during a period of all-time low interest rates, which is not all that surprising. Those buying today are betting on rates staying that way for a long time.

SQRT
Gold Ring
Gold Ring
Posts: 1969
Joined: 01 Nov 2012 11:33
Location: Alberta/Ontario/Arizona

Re: Housing Affordability

Post by SQRT » 26 Nov 2017 10:04

patriot1 wrote:
25 Nov 2017 13:10
SQRT wrote:
25 Nov 2017 08:35
Even if it does decline (or level off) at some point, it is clear that real estate has been a surprisingly good “investment” since the financial crises, at least in most of the big cities.
You're essentially saying that RE has been a good investment during a period of all-time low interest rates, which is not all that surprising. Those buying today are betting on rates staying that way for a long time.
No what I’m saying is simply that the conventional wisdom was wrong as it often is. I really have no opinion on real estate values now or in the future.

Post Reply