“Am I horny,” Nick asks, “or just confused?”
Well, let’s find out.
“I’ve been faithfully avoiding the plunge since before the U.S. housing crash, but times are changing, personally anyway,” says the 31-year-old from Regina. As it turns out, Nick has one kid, one on the way, a working (for now) wife, family income of $120,000 plus an eviction notice.
The financials? Seventy-five grand spread over four TFSAs and RRSPs, plus a weensy company pension. There’s also student debt, being paid off at a thousand a month. So far they’ve been happily renting a townhouse for $1,750, but the combination of this eviction thing (owner is moving back in) plus HGTV is proving too much to resist.
“So here’s my argument for buying,” he says, “given my income and the fact you shouldn’t spend more than three times what you make on a home, some of the houses for sale around me (south east Regina) are actually reasonably priced, $360,000 for a 1350 sq ft bungalow that’s in really good shape but dated is not bad. Plus you can get a 10-year mortgage for 3.99%. Anyway, I’ve got about six weeks to pull the trigger, so if you’d care to explain why I’m an idiot for taking this path, that’s greatly appreciated.”
Three-sixty for a bung. The inmates of YVR can only imagine. But then again, it’s Regina. They were melons on their heads to football games.
Still, should Nick go for it, buying that little bungalow with its cute turquoise toilet, harvest gold appliances and shag? Does it make financial sense for this almost family of four? Surely in a cheapo city with a funny name lost out in the grain fields, there must be redemption.
Well, after paying down the student debt, Nick and his brood look like they’re worth about $50,000. So buying a $360,000 house with 10% down and closing costs will pretty much wipe them out. They end up with a single asset, and a monthly nut more than twice the rent they currently pay (mortgage at 3% plus property tax, insurance, opportunity cost on the down payment, plus a modest reno and maintenance budget).
In practical terms (a new baby, mat leave, increased child care costs) these guys will save nothing, diverting all of their cash flow into something they could have rented for half the cost. Meanwhile they’ve got two kids and essentially no pensions. When you’re just 31 stuff like sending your spawn to university or retiring in dignity looks light years away. But it’s not. And people who choose to have children should be more responsible than to gamble their family’s future on a pile of bricks on the prairies.
Harsh? Too bad. Here’s why Nick’s sounding like an idiot.
First, Regina’s enough like Saskatoon to be sideswiped by the same commodity crisis. Oil is headed back towards the $40 mark, rendering most of our energy industry unprofitable. But it’s not just crude. Potash and grain are also suffering, with prices having fallen by dizzying amounts since the spring.
No wonder CMHC had this to say about a local real estate market where two years ago there were bidding wars and a condo-building boom: “In Regina, price acceleration, overbuilding in the condo market and overvalued home prices are responsible for the heightened housing market risk, although CMHC notes that price growth is beginning to wane.”
No kidding. The market is sputtering as a result of terrible fundamentals. Even Royal LePage is not blind to the mess, saying in its latest report it sees, “year-over-year median price decreases across most housing types surveyed in Regina. In the third quarter of 2015, the aggregate price of a home in the region declined 2.2% to $324,606. Over this period, the median price of bungalows declined 3% year-over-year to $298,839, while the price of condominiums fell 5.2% to $250,879.”
The local realtors add this, Nick: overall sales in September were down 14%. Single-family detached sales off 13% and condos falling 16%. Prices are 4% lower in the past year and now 7.3% below levels of three years ago. The dollar volume of sales has crashed 17% while the supply of active listings is “well above historical levels.”
Does that sound healthy? You really want to spend every dollar your family has, embrace a new load of debt and double your monthly living costs so you can catch a falling knife? What’s the prize? To swagger into work and brag you’re a homeowner.
Man, have we lost our way.
Yes, Nick. Horny. And confused. Get over it.