Well I thought it was about time to revisit how much the average Vancouver area home buyer must earn to afford to purchase different types of fairly average accomodations. This calculator assumes a 32% ratio for all housing costs - this has typically been the criteria for CMHC backed mortgages in Canada. Click on the chart to enlarge it.
It is shocking to me to consider that a household must earn nearly $60,000 per year in order to afford the average condo in the Fraser Valley. That is even with an insane 40 year amortization mortgage. And I thought condos were supposed to be affordable for first time buyers and low income earners - phsssssh - so passe - only high income earners, loan application liars and ever-so-prescient real estate speculators can afford the basic condominium now. My former condo was affordable when I bought it but it sure wasn't when I sold it.
Go to the CMHC site and do the calculation for your situation. Tell us what you find. Is rent cheaper than the monthly payment? By how much? Or if you already own your home, would you be able to afford to buy it today with your current income if you had to.
In the category - what are you smoking - another bank releases a milque-toast economic report on how Canada's housing market is undergoing a soft landing. I'd like to see the TD Economics department relocated to downtown Vancouver and we could see those poor economists struggle under the burden of a crushing mortgage payment double what they pay in Toronto for a similar property. Here are the comments about the Vancouver market that defy logic:
Vancouver – A balanced market within sight
Existing home prices are expected to post a 12% gain from last year. TD Economics forecasts that this softening in price growth will continue into 2008, where the yearly average resale home price gain is expected to come in at 7%. Okay brilliant TD economist, how much did wages rise or interest rates fall? Wages were up approx. 3% and interest rates rose thus making houses more unaffordable than ever. How exactly will we sustain another 7% rise in prices?
What lies beneath this outlook? We have profit goals as a bank for next year and the profits hinge on us reaching our lending goals so we were reluctant to release the real analysis that we did because we wanted to keep our job. Oops . . . I mean . . . First, a higher number of existing homes listed for sale. This dampens new home demand and helps ease relative demand pressures for existing homes. As more homeowners look to lock in price gains from recent years, listings are expected to continue feeding supply more than enough to meet demand.
The second main driver behind our forecast for softer price growth lies on the demand side: affordability. Not only is affordability poor on a level basis, it has been deteriorating significantly in the last couple of years. Hmmmm . . . . really - you don't say!? Typical mortgage carrying costs for a median-priced home in Vancouver required close to 10 percentage points more of the median market household income in 2006 than it did a year earlier. I guess no more food for junior and we are going to have to drive that old Honda for another 10 years. As the lagged effect of this significant deterioration works through the system, it will continue to dampen demand going forward.
Whereas sales might increase at most 2-3% from last year, new listings are expected to increase by twice as much in per cent terms. After exhibiting the characteristics of a strong seller’s market since the turn of the decade, Vancouver’s market is heading back towards more balanced conditions (see textbox for discussion of overall market balance measure). Indeed, the demand-supply ratio for Vancouver’s housing market is inching towards the balanced market range of 0.4-0.6. So how exactly will demand (sales) going to increase when you just said it would decrease? I don't understand.
On the new home market front, housing starts continue to downshift after having peaked in 2004. However, the number of starts should remain lofty throughout the forecast horizon. A lean inventory of completed but unabsorbed units, along with high construction costs, have helped continue an upward trend in new home price growth that is six years long and still running. Extrapolation at its finest - prices have gone up so they will continue to go up. Brilliant!
Residential construction continues to face challenges like a shortage of skilled trades, high land prices, and increasing competition for resources from the non-residential sector. This is illustrated by the recent increase in building permits that has not been accompanied by rising starts to match. In other words, builders have purchased permits, but have not broken ground. Unless sufficient resources can be made available to catch up with building intentions, this is likely to put continued upward pressure on new home prices and to further erode an already strained new home affordability. This is why framers and guys who pour concrete without high school education make more money than well educated financial planners who manage millions of dollars of other people's money! I'm not bitter!
In terms of resale home price growth, Vancouver was the first western market to cool from its peak of 20%. Thankfully, the easing from such a break-neck pace of growth is proceeding gradually. Demand remains well supported by a pace of job creation that only Alberta has been able to outmatch. But Vancouver’s job market is also less vulnerable to downside risks tied to the volatile resources sector, and employment growth is expected to outpace the Canadian average by 2.5 times. Therefore, we are expecting the market to remain relatively tight. But as the supply of homes continues to grow, while demand softens as a result of eroding affordability, price growth should head back down towards a more sustainable pace. Yes we have robust employment in Starbucks baristas, retail, tourism, and yes, of course, construction employment. All of which are low paid, non-house-affording jobs except for the construction employment. And how exactly is our employment not directly tied to the volatile resource sector? Isn't the BC economy 'resource based' like cutting trees and digging up rocks?
TD Economics - you get the mohican what are you smoking award - hooray.