Dustan Woodhouse’s a mortgage broker in Vancouver who writes a regular commercial and calls it a blog. That’s cool. It’s an eat-what-you-kill business. Why would he be objective? Still, his answer to the question, “Would you buy real estate in Vancouver today?” is one you hear a lot around town these days. It’s yes.
“Perhaps the timing will prove poor initially – whether you buy this month, next year or three years from now. However 7-10 years from the date of purchase you will most likely be glad that you bought into whatever market you did. It is difficult to find many homeowners who regret buying in 2003… Focus on the big picture, know that time fixes pretty well every Real Estate mistake as far as values are concerned.”
The average house price in Vancouver in 2003 was $329,447. The median family income was $57,926. Today the median income is $68,970, and the average house costs $922,600. Hmmm. A ratio that was nosebleed ten years ago (the average house costing 5.6 times income) is nuclear now, at 13.4. If we saw similar gains in incomes and prices over the next decade, as Dustbuddy suggests, the typical Van house would sell for about the net value of Detroit.
Of course, he’s nuts. The point of unsustainable absurdity has been reached in a number of Canadian markets. There are only two reasons why houses cost what they do, and that’s cheap money and cheaper pitchmen. By counseling people to jump in, whatever the cost, because “time pretty well fixes every real estate mistake”, we’ve reached a new pinnacle of ethical fuzziness.
In case Dusty missed the news of the last 24 hours (don’t expect to see it on Global TV tonight), let’s recap. First, the IMF says we’re screwed. Well, not everybody – just those who borrowed a boatload of cheap-for-now money in the past few years to buy a house in Toronto or Van or Calgary or The Peg.
Look at this chart, which tracks real estate valuations based on a house-price-to-rent ratio. The only serious country which comes close to being as screwed as we are is France, where men cry and carry handbags.
And then there’s the Royal Bank, just making it worse for the Dustmeister.
Our biggest bank (and issuer of mortgages) says housing affordability continues to erode, thanks to mortgage rate increases this year and the fact stunned buyers (clients of you-know-who) continue to buy houses and inflate prices. The combination has resulted in a bizarre situation. It now takes 55.6% of pre-tax family income (an average) to carry the average Toronto house (mortgage, taxes and utilities), even after a whopping 25% downpayment.
The average GTA family income, by the way, is about $98,000. Fifty-five per cent of that is $53,900, which is actually 75% of the money that family brings home in after-tax income. Ridiculous. But it’s nothing compared with Vancouver, where RBC says it now takes 84.2% of gross income to carry a house (with 25% equity, remember), which is $6,000 more than the average family actually nets. “Affordability slipping,” adds the bank. No kidding. They said that.
Of course, Rob Ford isn’t the only great thing about Canada drawing widespread attention these days. The boys at Motley Fool just came up with “7 Remarkable Numbers from Canada’s Housing Market.” They’ve all pretty much been beaten to death already on this pathetic site, and include a 150% increase in real estate values, household debt at 163% of income and 53,000 more condos under construction in Toronto (“That’s twice the rate of New York City — an area with three times as many inhabitants.”)
But the Fool also reminds us of the really scary stuff: “This debt binge has produced some eye-popping valuations. Today, Canadian real estate is priced at 27 times annual rental income. In certain cities, the figures are even more outstanding. In Toronto, the average home sells for 37 times average rental income. In Vancouver, it’s 60 times annual rents! This is well outside historical averages.”
And this, of course: “Today, 13.5% of all jobs in Canada are linked to the construction industry — the highest proportion in 40 years. Compare that to the United States, where only 5.8% of jobs are related to construction.”
No, Dustbunny, this isn’t 2003 anymore. We have an asset class so swollen and gorged by debt, rendered so unaffordable by house lust, and pimped so far into the absurd by enablers like you that a reckoning cometh. Time will not heal this mistake. But you can.
Update: Mr. Woodhouse responds. Says he owns the hat, not the car.