Maria & BF, 29, rent a condo and lust for a semi. “I want us to get a semi together in Toronto under $600,000 over the next year or two in a good area, like the Danforth, with transit, parks, schools, etc.,” she says. Maria claims this blog is “addictive and funny,” but apparently she doesn’t take me seriously (it’s a common affliction). “I am concerned about missing out on a few years of affordable interest rates, if we don’t buy now.”
We’ll come back to the young hormones in a moment. First let’s talk about those cheap rates.
For all intents and purposes, those 2.99% five-year deals are gone, quietly squished after F had a hissy fit and muttered bad things about a race to the bottom. Yes, yes, you can still get a five-year closed loan for as little as 2.74%, but for that you’ll have to deal with a company that also pumps septics and fixes lawnmowers.
Mainstream lenders are all north of 3% again, with BMO the cheapest at 3.09%, Scotia at 4.99% and TD, CIBC and Royal at 5.14%. Yikes! But these are ‘posted’ rates. There are in-branch specials, online discounts and four-year fixed loans still at 2.99%. Speaking of Scotia, the five-year there is now 3.19%, which means the bank heeded F’s rant, even thought CEO Rick Waugh did some tough talking to reporters.
“As a minister of finance, he’s obviously concerned about the well-being of the country. However, to price products for businesses — whether it be banks or manufacturers — is not what I would have expected,” he said. “I understand why the finance minister is concerned about the Canadian economy, but I just philosophically don’t think government should be setting product pricing.”
On one hand, Waugh has a point. If left to their own competitive devices, the bankers would compete viciously for a dwindling mortgage market with the lowest-possible rates. But, on the other hand, we have Maria. She believes debt is good, so long as it gets her what she wants.
The two of them make a combined $120,000 and have a hundred grand in savings (good), all in GICs and savings accounts (not good), “because both of us are plain vanilla and like things safe.” Despite that, they want a $600,000 semi, instead of the condo they now pay $1,475 for. So, does a $500,000 mortgage bother her, especially given the likelihood of mortgage rates being far higher when the first renewal arrives?
Nope. Not if she get the house. “I am also concerned about prices for houses never falling in Toronto, and prices for more affordable houses in good areas shooting through the roof (which is already happening with all semi-detached homes in the 416). I want us to settle down and have a place to call our own.” Aren’t twenty-somethings cute?
At the same time, Maria can see the market shows distress. One-bedroom condos in her complex average $325,000, with $500 in monthly fees. “There are 21 units listed for sale in our building alone right now,” she admits.
This is what cheap debt does. It builds immunity to risk. Maria and her squeeze are so risk-averse they keep their money in cadaverous GICs and comedic bank accounts, and yet think nothing of taking on a half-million in loans for half a house, at a cost which will only increase. Besides, what happens when they have a kid, drop one salary for a year, and add $1,500 a month for daycare?
It’s ironic without end that F was the guy who fathered 0% down and 40-year loans while telling everyone it was safe to buy, and now bullies banks into raising rates. More than anyone, he instilled in Maria a belief that no amount of debt is too much when it yields a house. So now that a credit bubble’s replacing the real estate gasbag, his legacy has blossomed. Houses people can’t afford. Debt they can’t repay.
Of course, the little pecker’s right to mash the bankers. Teaser-rate mortgages helped destroy the US housing market. Why should it be any different here? The economic cost of cheap loans is staggering.
Meanwhile Maria asks. “My question for you is, should we buy a house over the next one to three years? And if not, when do we know it’s time to buy?”
Buy when you can afford it. Buy when you understand the risk. Buy when you need a house.
Right now, lady, you’re zero for three.