Tag Archives: house prices

Another Half Percent Rate Increase

10 minutes ago, the Bank of Canada announced another half percent rate increase – and they’re not done, yet.

At the start of the year, the Bank of Canada rate was 0.25% and the housing market was humming. That’s come to a crashing halt. The days of multi-offers are pretty much over and it’s taking a number of price drops to sell a home in most markets.

Keep in mind that “average” statistics for housing across Canada are totally useless. A small stable market isn’t impacted, while Toronto, Montreal and Vancouver will certainly see the brunt of the price drops and reduced sales. In between are a vast variety of different cities with a wide variety of factors and impact.

You also need to remember that the Trudeau stress-test is still in place. At the start of the year, someone with an $85,000 income could qualify for a $500,000 mortgage. Today, that would take an income of $113,000. And that’s assuming no other debt of any kind. Since nobody I know received a $28,000 annual raise, the person needs to find a much less expensive home or stay on the sidelines until rates drop (which won’t be until 2024) or prices come down – way down.

Since the housing sector is such a huge part of our economy, you can bet on a recession. But this recession won’t have the Bank of Canada dropping rates to resurrect the economy. They’re entirely focused on inflation. It’ll be a significant slow-down in the housing market, then a recession resulting in job losses without any help from the government or Bank of Canada until late 2023 or 2024.

Much like the imbalance in the car market for the past two years, it will likely turn out to be a great decision to put off buying a home for the next year or two…

Is Your House Helping Or Holding You Back?

On my December cruise, I overheard a whole lot of people talking about the purchase of their home. This isn’t scientific and I have no clue where they live. There’s also no such thing as an average price. There’s a difference between New York city or White Rock and rural Saskatchewan or Wisconsin.

One couple was talking about a $104,000 purchase. Another paid $127,000 two years ago, another just refinanced their $185,000 home. We’ll never see those prices in the Okanagan, lower mainland, or here in Edmonton, or Calgary. Our prices start with a 4 or a 5…and that’s if we’re lucky.

Incomes aren’t really different in the US and Canada. But what would our life be like if we didn’t have mortgage payments double or triple those of someone who didn’t come close to paying half our purchase price? It’s not as though we all choose to live in a mansion. If that were so, we would deserve the huge payments that come with a chosen lifestyle. We’re paying the huge taxes, utilities, upkeep and mortgage payments because our prices are so much higher. We’re now one of the highest countries in our income to debts at 1.6 times. The US is down to 1.1 times. So we’re way broker than Americans, and a large part of that is our cost of housing.

I’m not wishing for a housing crash, and that wouldn’t solve anything anyway. But, if I had a $150,000 home, I would now be mortgage free and have over $200,000 saved. That would have been the monthly payment after the house was paid off diverted into investments. Instead, you, me, and tons of Western Canadians can’t really save much, because it’s all going into our homes.

I don’t have an answer, because I’m not moving to rural Saskatchewan or Wisconsin. Even selling my home and renting won’t put me ahead financially. It’s just depressing sometimes to think of how much of our finite incomes go into our homes. It’s also nice to dream sometimes of what it’d be like to be mortgage free before age 30. That isn’t hard when the house cost $140,000 or so and the interest is tax deductible…

If you actually have money and are investing, you might want to check with your financial or investment advisor on something in the area of housing. Real Estate Investment Trust (REITs) are not normally something to invest in when rates are about to rise. But there is, and will continue to be, a stall in home sales. Right now, the 20 to 30 something generation is still buried in $1.3 trillion student loan debt. They aren’t buying homes, because they can’t qualify for a mortgage, so first time homebuyers are a rare breed in the market. As a result, they’ll continue to rent, and that’s what REITs are all about. Don’t do it because I said so, but the logic makes sense.