Mortgage Bytes

  • Home-prices Gains in Canadian home prices have now surpassed those of the U.S. over the last 10 years.  Is it indication of further momentum, or a warning sign?  (Gazette story)
  • 60% of Canadians own their homes, compared to 70% in the U.S. (Globe & Mail)
  • The Bank of Canada is getting a new boss on February 1, 2008 when David Dodge retires.  His name is Mark Carney, a former-Goldman Sachs investment banker.  Carney is Harvard and Oxford educated and was born in Fort Smith, Northwest Territories, a town of 2600.
  • Many people don’t know that reverse mortgages involve setup fees.  According to the Globe & Mail, CHIP fees, for example, entail appraisal costs of $175-$400 and legal/closing expenses of $1585-$1885.
  • Equifax now allows mortgage planners to initiate investigations on credit file items on their client’s behalf.  It costs $14 per inquiry.  If you’re a mortgage planner, contact your Equifax rep. for details.
  1. Melanie, CHIP sure doesn’t make these fees very obvious on their web page. Thank you for pointing them out!
    Georgia

  2. Oh, it’s a warning sign alright, only in certain areas though. Home prices obviously can’t out-pace incomes forever, at some point people will suddenly wake up and realize they can’t afford the places they are trying to buy.
    Let’s take, for instance, the average home price in a few cities across the country…and see how things are coming along. The only figures I could find were ‘the daily’ figures for median family income in 2005. I estimated the 2007 income by adding 2.5% per year for 2 years. I got the average (I wish it were median) selling home price off of crea.ca.
    Normally, people like to recommend that you stay somewhere in the neighbourhood of 2.5 times your income to afford a house. Being a ‘rule of thumb’ it’s not good for every scenario, but it should probably get people shopping in the right area of price range.
    In the low end of the cities available in both areas we have Saint John with the Aug 2007 average selling price at 137,471. The 2007 estimated median family income was $59,886 making its home cost to income ratio 2.3. Should be able to find some good deals there. Quebec City and Regina did fairly well at 2.42 and 2.43. Moving in to the acceptable range where people start to stretch is Halifax (3.22), Ottawa (3.31), Hamilton (3.71) and Saskatoon (3.79). Though these are fairly acceptable ranges things get a little worse from here.
    Now we come to the places that are overpriced for income.
    Edmonton (4.53): Considering the median income here is somewhere around 76K people can probably afford homes if they do things like put 20% down on their purchase.
    Calgary (5.35): Things are getting tough. With an average price of $423,801 and an income of somewhere near 79K people are going to feel the pressure. With 20% down here over 25 years at 5.79% interest you get a payment of 2,127.07. That requires a yearly income of only 79K exactly. Where does that leave the bottom half of the medians?
    Toronto (5.57): Things don’t look as bad with the average selling price down near $361,898, but consider the median income at only $65K or so you start to have trouble. Once again with 20% down the median family can just squeak by and get their 32% of income on their home.
    Victoria (8.05): Wow, just Wow. Average selling price was $565,685. Even with 20% down (that’s $113,000) the median family, at 70K, is still short as the payment (25 years, 5.79%) would be 2,839.18. That requires an income of around 106K. Just who are the people buying these houses?
    Vancouver (9.51): Approaching 10 times earnings for the average selling home? We’ve gone right past ridiculous and moved on to ludicrous. The median family makes around 61K; the average home goes for 587,483. Even if they do save up their $117,000 down payment, they are still in it for a payment of $2,948.59 which would need an income of $110,000.
    Now I realize some of these people are climbing the property ladder and the homes they got for 100K 10 years ago are selling for 300K and moving up, but eventually something has to give.

  3. Many people don’t realize it but Vancouver is a world city. Vancouver’s demand is not dependent on local buyers.

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