Bob Jablonski exudes cowboy confidence. “The Calgary market continues to move in the right direction,” says the real estate board president, “with all indicators pointing towards stable growth and a move towards typical levels of activity.” Apparently typical is an average SFH price of $433,500.
And up that boring road in Edmonton, head realtor Doug Singleton is thumping the Alberta Advantage. “Other markets, such as Toronto, are reporting feverish real estate activity involving multiple offers and unconditional offers,” he boasts, “but our market is calm, orderly and slowly evolving.” In oil town, a single home is now $380,083.
Arguably, with downgraded Ontario’s new taxes on the rich, BC shrinking economically and mentally ill, and indebted Quebec trashed by students, Alberta’s looking phat. Highest average income. Hundred-buck oil. Top marginal tax rate a full 10% below that in the east. Two Amazonian political party leaders. Maybe this is as good as it gets these days.
So why is it so many people can’t pay their property taxes? As a blog dog mortgage broker pointed out, there are 220 foreclosures on the market in Edmonton alone, or about 5% of active listings. Context? “CMHC has been stressed tested to be able to handle a doomsday scenario of over 3% default rate before becoming insolvent itself, according to Canadian Mortgage Trends,” he points out.
More telling, there are about 600 properties in each city scheduled to be sold off because the owners are at least two years behind in paying their municipal taxes. The list is here. Says our broker, “These numbers serve as a leading indicator that folks are financially stretched to the limits and holding on by their fingernails. And this in a province where we have tons of jobs and apparently it’s boom times again.”
Exactly. This blog’s message is reinforced yet again: most people are screwed. Observe carefully, then run in the other direction.
Here’s more evidence. A new survey from the Association for Canadian Studies asked people if they were concerned about paying their bills. Over 50% in Ontario and BC – where real estate costs the most – said yes. Of those making between eighty grand and $100,000, 41.2% are worried. And across the country, among people taking home more than $100,000, almost 23% admitted they may fall short.
So how could folks earning twice the national average fret and gnash over paying the next cable bill? Easy answer to that one. I flash on the 50-something BC couple I met on the weekend. He’s an engineer. She’s a lawyer. Family income is $274,000 and they have only $64,000 between them in RSPs and a suicidal trading account. But they own a house, a cottage, a rental condo and a vacant lot – all mortgaged. All either declining in value, or about to do so.
The cult of real estate claims more victims daily. Precious family income’s shoveled into a dying asset class rather than a diversified portfolio. Almost everybody underestimates the cost of ownership and inflates the rewards. Brushed aside are closing costs and selling charges, as well as property taxes, maintenance charges, condo fees and endless home improvements driven by fad and fashion. Truth is, most people who bought in Calgary or Edmonton four years ago have lost money. The same will be true in Vancouver two years hence. And recent ‘winners’ in Toronto bidding wars will curse ever having gone to battle.
RBC estimates 52% of pre-tax average family income is needed to own a house in Canada – even with the lowest mortgage rates ever. That leaves 48% of the after-tax portion of $83,100, or just $30,340 yearly – $2,500 a month – to afford food, clothes, a car, gas, insurance, utilities, vacations, kids, pets and sufficient alcohol. The survey noted above says four in ten of those families can’t hack it. They worry about running out of money before they run out of month. So you can kiss off any cash for the TFSA or retirement plan.
So what happens when 70% of all families join the cult? Yep. Screwed.
Understand this. Do the opposite.
Tomorrow, death by condo.