Friday, March 14, 2008

homeless in vancouver

It's official, no one can afford to own a home in Vancouver!

RBC economics released its most recent housing affordability survey which showed that in Vancouver 74% of ones's pre-tax household income is needed to service the costs of owning a home. This compares with 47% in Toronto and 42% in Calgary. I knew the B.C. market was bubbly, but this is ridiculous. Apparently this affordability level of 74% is the worst on record, ever.

For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

This trend is expected to cool though, as interest rates are coming down, house prices are predicted to moderate, and incomes are expected to grow.

13 comments:

Traciatim said...

I don't quite understand. The math doesn't work out for 74% of someones income going to a home. After income tax they would be already negative, and that doesn't include a car, food, sending the kids to summer camp etc.

Are they simply saying the median salary can't buy the average home unless you put 74% of your income in there. . . or are they actually saying people who are home owners are using 74% of their income to keep their homes?

Traciatim said...

Wait now, your post explained it. So all this is says is that median salaries aren't keeping up but there are plenty of people above median around to pay the prices. Maybe all the lower income people should move to more affordable areas. Out here in Atlantic Canada I'm sure there are plenty of bargain homes, just check MLS, home a-plenty and at reasonable prices.

Sarlock said...

The average person cannot afford a home within Vancouver proper (where home prices are in the 600's or more). It has been that way for a long time, though.

You either have to move way out in to the furthest suburbs, 90 minutes' drive from downtown, to find houses in the high 300's, or you are doomed to a life of renting, which more and more people are.

I don't think it's a bubble, though. House prices have jumped considerably over the last 5 years, but not enough to really be considered a bubble. Because of the shape of the valley (like a big funnel), the price of real estate climbs as you get closer and closer to the ocean.

The people that are buying the homes closer to the city core are the ones that either have high paying jobs or have a large downpayment to reduce the size of their mortgage.

Traciatim said...

Though you can't really draw conclusions from the data, sarlock you may in fact be correct.

If you look at canequity.com they have averages of mortgage stats for cities. The averages they present for Vancouver:

Applicant Income: 61,324.00
Co Applicant Income: 40,896.00
Mortgage Amount: 256,306.00

That looks like pretty standard fare for mortgages to me.

MG said...

Thanks for the remarks,

The 74% is likely based on average income, so this is telling us that only that rich can afford homes there. There is likely a lot of renters.

It is difficult to not see it as a bubble if you look on MLS. Absolute rat-hole shacks are going for $600,000. Is the income base, and income growth really there to suppor these prices? How much does this have to do with the resource and mining booms?

telly said...

You make a good point in your comment MG. Most of us use affordability to determine market peaks & bubbles but really, if a "rat-hole shack" costs $600k and your annual income is $250k, can you still justify buying it? I'd say absolutely NOT! Especially if you could rent that shack for $1,000 /mth.

Sarlock said...

It all depends on which part of the city you are looking at. Vancouver, the north shore, Burnaby, Richmond... you are going to pay a lot of money for a house. And this hasn't changed in 20 years or more.

If you start to edge outwards a bit, Coquitlam, Surrey, you will start to find houses in the 400-500 range. Still expensive, but more manageable. There are certainly not a lot of first time home owners in these areas, however. Most are second or third homes from people that have upgraded from houses further out in to the suburbs.

Move a bit farther in to Maple Ridge (400's), Mission (high 300's) and Abbotsford (400's) and you start to reach a more "reasonable" house price. If even that is a bit too steep, move further east to Chilliwack and you will start finding houses in the low to mid 300's.

I grew up in Vancouver, so I came to accept that you just have to pay a lot of money for a house. My friends that still live there all live out in the eastern suburbs. The very few that have been able to buy a house closer to the city centre either have very high paying jobs or were able to drop a significant down payment on their home either through savings or, as is more often the case, a gift from mommy and daddy.

I bought a house in Maple Ridge (1 hour east of Vancouver) in 1996 for $189k. Today that same house would be worth about $400k. In 12 years, that represents a compound rate 6.5%. Definitely well within the scope of a reasonable real estate price growth rate and not what I would consider a bubble.

Vancouver has been expensive for decades and it will only continue to get worse. The city is crammed in between the US border, the ocean and the mountains to the north. The only developable land lies to the east, so first time home owners are finding themselves farther and farther from the city core to find themselves a reasonably priced home that they can afford. It's the laws of supply and demand... if you want to live close to the city core, you will pay the $$$ to do it. Otherwise, start looking eastward until you find a price point you can afford.

MG said...

sarlock, what would your house have been worth in 2003?

Anonymous said...

There's the pointed question!

We looked at homes in Vancouver in 2003 priced in high 200s, low 300s that are now priced upward of 600 or 700 grand -- or more! Nah, not a bubble.


In fact the benchmark home in Van is now over 900k.

We now rent at 1500 bucks what would cost us 600 grand to buy. Compare the rent to the mortgage payment, even with 20% down. It's what, double? THAT's why its a bubble.

re the equity data -- that would imply that current purchasers in Van are bringing, what, half a million to the table as a downpayment? I really have a hard time believing that.

Put me in the "it's a bubble camp".

Geoff said...

I'm not sure it's a bubble or not, at least here in Toronto to be honest. What I am sure of is this is story the media has been loving for quite some time.

This year's bubble story:

http://www.torontolife.com/features/sinking-feeling/?pageno=1

bubble story from 2002
http://www.thecanadianencyclopedia.com/index.cfm?PgNm=TCE&Params=M1ARTM0012334

Traciatim said...

I just recently did a search on MLS for any 3 bedroom detached homes in Vancouver and found this is the cheapest currently.

http://tinyurl.com/3777h6

Pit this against my home town at the same price . . . which would you rather live in?

http://tinyurl.com/2uus9c

The home up top is kind of like my first home that I purchased last April for 102K in Saint John . . . Just a descent bungalow good for my family of 4 in a nice neighbourhood. Only I would NEVER pay 450K for the thing . . . not unless the median salary in the area was 200K or so.

FinancialJungle said...

There's a Vancouver bubble for sure. Traciatim, that Vancouver junk you found on MLS has been on the market for a while now. My wife's co-worker home has been on the market for about 9 months now. It's slowing down for sure.

The rent/price in my area is now in the high 3% range.

Anonymous said...

Put Garth Turner in the bubble camp too.

http://www.greaterfool.ca/

Whether it's a "bubble" (whatever that means) or something else, there's a growing chorus of skepticism about the sustainability of recent trends.

Particularly given we're moving from a period with a very robust economy, very low interest rates, low unemployment, low inflation, perceptions of the risk free nature of real estate and now have record unaffordability. Tweak any of those factors (wait -- real estate can LOSE value?!?!?) and goodbye tipping point.

I think it's a looooong way down from here for most of the major markets in Canada, particularly Toronto and out West.