It took one pathetic ad to push them over the top.
“So much for the early 30’s couple debt free and with combined net income of $98,000,” she wrote. “We are leaving Vancouver and moving to Ladysmith on Vancouver Island right after New Year. My husband is an engineer and I run my own clothing line startup. We have to leave.”
She calls it the smartest decision possible, moving across the water where house prices are half. Wants you to know that.
“We love Vancouver but Vancouver doesn’t love us back. We have to leave.”
And here’s the ad, from realtor James Lam, flogging a piece of crap on a 33-foot lot that looks ready to condemn. A Vancouver special – bedroom and kitchen in the basement, and don’t disturb the tenant. He bites. For about $800,000.
Ironically, the Royal Bank’s latest bouncy report this week made much of an improvement in the ‘affordability’ of homes in BC, thanks to a modest price drop and some declines in long-term mortgage rates. To the bank it’s great news that across the country owning an average house now sucks off 43.6% of a family’s total pre-tax income – down from 48.9% earlier this year.
Of course, that’s just to own the house. Not to buy it. For that the bank based its ‘affordability’ numbers on a down payment of 25% (the average across Canada at this time is 7%), and a 25-year mortgage (90% of new mortgages are for 35 years).
What does that mean? If the Vancouver couple making $98,000 (about $15,000 more than the average), bought the junker above with 7% down – $55,300 would be needed, resulting in a mortgage of $735,000. At 4% for a five-year term, and 35-year am, the monthly would be $3,257, or close to $3,800 with taxes and insurance. Congratulations! That’s 46.5% of family income. RBC loves ya.
Of course, if they rented out the basement ‘suite’ for a grand a month, that would help with cash flow, making the bank even happier. Now the couple can afford a Royal LOC. A new Lexus would look bitching in front of that place.
The point, of course, is that anyone taking a $735,000 mortgage when interest rates are close to an historic low, and house prices in Vancouver (or Toronto) are at an historic high, which costs 46% of pre-tax income (that’s 63% of take-home income), is an idiot. The nob on your head gets even larger when the mortgage is one with a 35-year payback period, which means after making $195,433 in monthly payments over five years, you still owe $681,728. Yes, that’s right. Over $142,000 in interest, pissed away. So much for home ownership in this world of RBC affordability.
And what kind of a world is it, I hear you cry?
Well, one in which the Canadian economy, outside of the delusional housing market, is a swamp. We already heard this week that our trade is in massive deficit with the rest of the world as imports swell and exports wither. Since the autumn of 2008 there have been eight quarters. Guess how many of those we have run a trade deficit. Yup. Eight.
And Tuesday we get the latest GDP number for the last few months – measuring economic growth. It will be as impressive as the return you get on, oh, a RBC high-yield savings account.
Meanwhile that thing beside where William and Kate live – you, know, Europe – is unravelling. As one analyst put it: “Europe continues to crumble under the weight of their escalating debt crisis. As this has moved from a sovereign debt issue to a major crisis of confidence, it has become increasingly difficult to quantify and forecast the snowball effect.”
And the prescient but controversial Nouriel Roubini now warns Spain is about ready to go pointy-side-up. As he reassuringly put it: “There is not enough official money to bail out Spain if trouble occurs.”
Of course, a debt contagion sweeping through Europe would goose bond rates as investors headed for safe havens, jacking five-year mortgage money across Canada and making anyone spending $790,000 on a two-storey collection of orange crates, particle board and duct tape worthy of endless ridicule on this pitiless and unremorseful blog.
And don’t get me going on the structural unemployment rate in Canada, BC’s vanishing local economy, the certainty of higher federal taxes, unsustainable household debt or the fact our major trading partner is on its knees and electing yahoos and whackjobs to Congress.
Risk augments. Common sense fails.
Believe it or not, kids. There was a time banks paid interest and earned respect.