“I feel like that perfect female character you’ve been describing in your blog, emotional wife that’s house horny wanting a ‘home’,” says Betty. “We’ve been good at saving, and renting, and the landlord is kicking us out so now I (the wife) want to buy.”
Young Betty & her cuddles together earn $115,000 and put the rest of us to shame when it comes to squirreling – $140,000 sitting in a savings account (house money) and another $80,000 in TFSAs. Now the LL is ending their lease, “so we are facing the situation of spending $2,000 per month on either rent or on a mortgage. It is so darn difficult to find a place to rent that’s large enough, allows dogs and has in-suite dishwasher & laundry. We intend to buy a place around $400,000.
“I have been reading your blog for two years. I KNOW that a correction is to happen in my life time but WHEN?! Part of us just wants to settle while a part of me is emailing you at the moment hoping you’ll reply and slap some sense into me.”
Now, obviously, these kids don’t live in YVR, or 416. They make reasonable money, and save like crazed beavers. She’s asking for guidance. Plus they have a dog. So how can not like ‘em? Buying a $400k house with a hundred down means a mortgage (5-year closed @ 2.6%) of $1,300, so with property tax and lost earnings on the deposit, the monthly works out to a few bucks over $2,000.
Is it worth upgrading from rental apartment to a backyard for Fido and an end to house lust, taking advantage of the bottom in fixed mortgage rates and a depressed economy, while retaining $120,000 in a liquid portfolio?
Hell, yes. Betty should buy.
As this pathetic blog has striven to point out many times, all real estate is local. A majority of markets these days are stagnant, declining, boring or stable. Even the GTA (as detailed Thursday) contains hundreds of affordable properties, with many prices currently below levels of ten months ago. The housing bubble is only in Vancouver, saucy bits of the Lower Mainland, 416 detached, hunks of the 905 and in the minds of every journalist, most of whom live in condos and wish they didn’t.
Nobody, of course, should be buying right now in Van, North Van, West Van, Surry, Burnaby, Oakville, Leaside, Leslieville, North Toronto or other areas where speculation and delusion rule the day. Even as DOM grow longer and sales more difficult, prices remain at inflated, unrealistic, greedy and hedonistic levels. This will change. Wait for it.
People actually have less disposable income lately. As predicted, inflation’s taken a big turn higher as the dollar swooned. Veggies jumped 18% year/year last month after a 13% surge in December, and as the cost of living rises, family cash flow falls. This is why fewer people are house-shopping.
Then there’s the budget coming in four weeks. The T2 gang will be spending hugely – possibly doubling the forecast deficit – in an effort to crank jobs. Whether you agree with this artificial stimulus or not, it will mean two things: more taxes (they’re coming, trust me), and no more interest rate cuts. The Bank of Canada will be letting the feds do the heavy lifting, especially since higher US rates (more ahead in 2016) will pressure our dollar. We just can’t afford cheaper money any more.
Remember, as well, the new down payment rules – in place for a week, now. The impact will be noticeable as moisters with 5% or less down are restricted to buying cheaper properties, helping temper bidding wars and higher valuations. And then we have the impact of oil creep, far more tangible than first appears. The collapse in commodity values will reduce Canadian growth to just 1.4% says the OECD, and job stress is being felt from the Mairtimes to Bay Street and Vancouver Island.
Look at Brad Lamb’s abandoning of major condo projects in Alberta as evidence of the obvious. New house prices are now rising at just the inflation rate and a fresh report from Moody’s Analytics says our whole housing market’s getting wobbly. In fact, it adds, things could come “to a screeching halt.” The reasons: “A continued slowdown in smaller metro areas could eventually drag down the overall market,” plus, “Mortgage rates will almost certainly rise by the end of the year as the U.S. Federal Reserve continues its rate hikes, driving up longer-term government bond yields in the U.S. and Canada through 2016.”
Moreover, Moody’s states, the ultimate impact of low rates today is probably negative for homeowners: “The Bank of Canada’s low interest rate policies may help prop up house prices this year, but even Canadian policy rate tightening is inevitable. This could price many new borrowers out of the market and increase the risks for those faced with rolling over existing mortgage debt or attempting to draw equity out of their homes. The result will likely be a softening of household demand over the coming years.”
Okay, so why should Betty buy despite all the overhang?
Because all markets are local and all of us are different. Those who are diligent savers, adhere to my rule of 90, have overall balanced net worth, can take advantage of softer markets plus low rates, who buy within their means, corral debt, maintain cash flow and slavishly cater to insatiable canine needs, well, they shall inherit the earth.
The rest of you, good luck.