Yours in Vancouver for $699,000. Listing.
On the same day Imperial Oil recorded a $1 billion profit plunge and StatsCan said a third of all employers were still laying off, the recession was declared dead.
That was the word from the Conference Board, and economists at Scotiabank. This, despite 64,000 payroll jobs disappearing in the latest reporting period, and a $1 billion bailout of Air Canada, a quarter of that being tax money.
To put it mildly, the dataâ€™s conflicting.
If you believe establishment forecasters, then the nightmare of failed businesses, vaporized earnings, unemployment and insecurity is ending.
If you observe the real economy, then not so much. But maybe misery is just a lagging indicator.
The exception, as we have noted with great interest here, is housing. In fact, a Canwest story which moved on the wire Thursday claimed boldly that house prices in both Canada and the US had stabilized â€“ an omen of good fortune.
â€œWith the housing market stabilizing…this cycle will end, and could even be followed by a cycle of growth: would-be homeowners who wouldnâ€™t buy into a declining market could rush to pick up todayâ€™s bargains, driving prices and luring still more buyers to keep the upward cycle going…â€
And so it goes. US home prices may be sitting 20% lower than they were a year ago (which was 15% lower than the year before), and 19 million American homes may currently be vacant, but the media spin is irrefutable: Rush and buy. A new upward cycle is starting.
Regular visitors will know my reasons for believing this will not happen. Wonâ€™t bore you with it all again. But whatâ€™s striking about todayâ€™s real estate market is the casino nature. Once again, a speculative fever has gripped society in which authority figures (muckamuck economists, the prime minister, realtors with cufflinks, Canwest) can pretty much condone, if not welcome, actions which look a lot like gambling.
Like I said, the data speaks for itself. And itâ€™s speaking golden retriever. There is absolutely no clarity on whether life will get better or worse for the average family in this country anytime soon. If rates rise, the loonie soars, oil spikes or crashes, swine flu turns into a neo-plague or some nutbar blows up the federal building in Chicago, people taking on piles of debt right now could seriously regret it.
But, hey, free country. Thatâ€™s their choice. If they think this is Japan, and rates will stay at 0% for a decade, no prob. Amoritize yourself silly. If they think house prices can rise by 5% a year for the next decade, putting the average Toronto home at $648,000, then believe that, too,
However, crunch this: If the typical Toronto home does hit $648,000 (and realtors claim an annual 5% appreciation rate is â€˜normalâ€™), and if mortgage rates return to their 20-year average of 8%, then to buy it with 10% down ($65,000 in cash, plus another for $18,100 in land transfer tax, plus closing costs) will mean mortgage payments of $4,500. Add in a grand a month for property tax and monthlies, and that ends up being a cash flow drain of $5,500. To afford that average house, according to CMHC guidelines would require an income of $17,000 a month â€“ or $204,000 a year.
So, yeah, makes sense to me. Average family income up 300% in the next ten years. Why not? Letâ€™s party.
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Dear Garth: I am a 100% down, 25 year amort case. Â Here’s the scenario:
Combined income – $110k a year
Wife’s (28) RRSPs – $0
My RRSPs – Approx $12k and contributing regularly
Mortgage = $289k
House value = approx $340k if we sold today
Term = 5 yr @ 5.08% (3 yrs remaining) approx $1650 a month
Credit line = $36k @3.8% (moving, renos etc)
Question is, we have virtually no spending power so the debt is moving at a snails pace and if we go with an extreme budget we may be able to pay it off in about 5 years. But that leaves no room for savings, a life or an emergency. What do you recommend? Â Do we sell, do we stay and pay it off in 5 years and then start with RRSPs? Â How do we strengthen our financial situation?
This fool needs some guidance. — Dave
Dave: Youâ€™ve owned for two years, nothing down, and youâ€™ve made $51,000 in equity advance, right? Fantastic! Real estate really works.
Of course, for that you borrowed $36,000 on a LOC for moving costs and renovations, leaving a net gain of $15,000.
If you sell for $340,000 youâ€™ll have commission of $13,600 (at 4%) to pay, plus GST of $680,Â and legals of $500. That makes your capital gain $720. Oh wait â€“ forgot the penalty for crashing your mortgage three months early. The standard three-month penalty is $4,950.
Bummer, Dave. Here, try the slots.
Update: Economy lays an egg in May