Where to Live? Thoughts on Home Ownership from the point of view of everyday people

Where to Live? Thoughts on Home Ownership from the point of view of everyday people

RBC released a statement today citing the recent spur in the housing market as a result of affordability. This ‘affordability’ is not a reflection of just the costs of properties – but more the cut in interest rates. The banks are getting people to focus on the monthly payments as a reflection of affordability. It reminds me of paying the minimum payment of a credit card – but of course the two types of debt are quite different in more ways than they are similar. What I would have loved to hear, is that there has been a greater gain in family income overall – but that hasn’t happened. People are losing their jobs, the yr over yr bankruptcies are up and Equifax recently reported a sharp increase in payment delinquencies (90 days or more). Here are the recent employment stats according to the CREA website:

In the first quarter of 2009, the unemployment rate in Canada rose 1.4 percentage points from the previous quarter to reach eight per cent. This is the highest level in more than seven years, and two percentage points above the record-low in the second half of 2007.

The unemployment rate for those aged 25 to 54 – the prime home buying age group – was up 1.3 percentage points to 6.7 per cent in the first quarter, and is expected to rise further. It now stands 1.7 percentage points above the level in the second quarter of 2008, when it reached the lowest level in more than 30 years.

On a seasonally adjusted* basis, there were 272,900 fewer jobs in the first quarter of 2009 than there had been the previous quarter. This is the largest quarterly decline in employment on record. These job losses reflect 304,300 fewer full-time jobs and the addition of 31,400 part-time positions.

Much of the decline in employment was due to manufacturing layoffs in Ontario, as well as fewer manufacturing and construction jobs in British Columbia and Alberta.

Meanwhile, real estate companies are raving about the ‘opportunity’ for home ownership. It sounds like psychological battle of the b.s., and while we can’t predict the future, we must ask ourselves, what segment of the population are they speaking to? The last thing you want to do is assume something is ‘about you’ – when it isn’t. Who are all these people buying? My guess is homeowners with decent amount of equity in their current property and perhaps those leaving the nest for the first time – under 35 – but this is just a hunch – I’m not sure. Here are some current numbers provided by www.canequity.com,

Average annual gross income for

mortgage applicants in Ontario: $58,531.93

applicants within all of Canada: $57,882.56

Difference: $649.37

mortgage co-applicants in Ontario: $42,284.69

co-applicants within all of Canada: $40,717.49

Difference: $1,567.20

MORTGAGE CHART

City or Town within the province of Ontario	Percentage of Inquiries	Average Age	Average Income	Average Co-Income	Average Loan
TORONTO, ON	10.137%	37	$71,783.32	$52,720.47	$251,008.50
MISSISSAUGA, ON	5.331%	38	$64,756.13	$42,593.04	$215,397.81
OTTAWA, ON	4.860%	37	$63,549.37	$48,130.20	$192,976.22
LONDON, ON	3.298%	36	$50,345.24	$39,318.21	$148,271.46
BRAMPTON, ON	3.206%	38	$55,558.44	$40,285.10	$186,553.00

According to this chart, in the city of Mississauga ( where I reside ) the average buyer is 10 years older than I am, with a household income of 106 -110k per year and is applying for a loan around 215k. The average house price in Mississauga? In 2008, that number was $339,655. (taken from http://www.mississauga4sale.com/TREBprice.htm) In fact, the average home sold in ON a year ago cost 316,103 and this year that has gone up to 322,059. (CREA ) Mortgage rates really aren’t that much lower than they were 5 years ago. The posted rate for a 5 year fixed conventional Mortgage in June 2004 was 6.7% That rate is now 5.85 (as of June 2009) according to the Bank of Canada website. So is any time a good time to purchase as long as your individual circumstance allows? I think so. What we have to determine is what our circumstances are.

I have to believe that not everyone is purchasing because they have 100k to put on a house. If the interest rates are lower they may be downgrading (to get lower monthly payment) or moving closer to their source of income. Distance and time are costs that people often overlook when purchasing property, focusing on getting more space for your buck is a mentality that is not shared by all, just ask any homeowner in the city core who spends a fortune for 700 sq ft so they can walk to work and other services.

There is no one right answer for everyone, but for those of us who don’t have savings, don’t know when we might get laid off (especially those in manufacturing), or have a high output of spending for living costs – a low interest rate is a catch 22. It isn’t a buyers market – in most areas of Ontario’s CMAs and lets face it – just because we can purchase a home doesn’t mean we can afford the ‘ideal’ property. The lower interest rates are likely to lull us into a false sense of security – to extend ourselves in an attempt to get more instead of an opportunity to spend less. That means home owners might max out their mortgage amounts by sinking all equity from their first home and savings in order to trade up, resetting the clock on their amortization period for another 25-40 years. I’m no expert in the field but have been researching the market for the past 10 years on and off and the perfect time to purchase a home was when we had the opportunity and the need to do so. The stats on home ownership in Ontario tell me that I were to purchase I would be at the far end of the bell curve – that is in the lower 2.5 %. Our household income is below the avg., and the avg. home price and mortgage numbers don’t add up. We don’t have 100k of equity to pay down on a 340k property. So that means – I should stay right where I am. That is the best right answer for me.

Best of fortune to all in the market (especially DRD)! Keep your eyes and your ears open and remember to consider all the factors – distance, time, employment market, childcare and schooling, access major transportation arteries, insurance (for home and car), public transportation, additional vehicles, moving costs, fuel and of course proximity to friends and family. Most of all, ensure that your purchase aligns with your short and long term goals and discuss planning for the unplanned ( loss of employment, illness, increase in family size, interest rate changes etc ) We can’t or shouldn’t plan everything, but making an informed decision that is based on realistic expectations and goals gives us the power to choose what we need rather than letting others define that for us.

Remember – no matter the cost, a happy home is built on a strong sense of community and belonging and a lot of love: )Think QUALITY of life people….quality.

Take care,

Dee