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Will I ever be able to afford a house?

Tuesday, March 25, 2008

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Written by Josh Dehaas

Just over a year from now, I’ll be graduating with a Master’s and starting my first real job. I’ll be paying off my debts and saving a down payment with the hopes of investing in a home as soon as possible. But unless I win the job lottery, it looks like it will be many years before I can actually afford anything more than a cardboard box. In the midst of a global credit crisis, mortgage companies are tightening up their rules. Combine that with the fact that the average house price in Toronto in 2007 was $415,041, and home ownership seems like nothing more than a dream.

A report by the Royal Bank http://www.rbc.com/economics/market/pdf/house.pdf last week confirms that Canadians in most major cities are paying off mortgages which eat up much more of their monthly income than they can afford. The CMHC suggests that people can afford mortgage payments of no more than 32% of their household income.CMHC Mortgage Calculator http://www.cmhc-schl.gc.ca/en/co/buho/buho_005.cfm In Toronto the average mortgage eats up 42% of income while in Vancouver the figure is an impoverishing 72%, showing that things can get much worse.

Confronted with this dilemma, I ask myself, how is it that the average house could be worth an amount out of reach for many middle class Canadians? (Our parent’s generation could certainly afford to buy houses before their thirties.) To answer that, I considered the costs that actually go into each home. There’s the cost of the land the house is sitting on, the cost of bricks and plaster and windows and doors and finally, the cost of the labourers who stick it all together.

While all three costs fluctuate with the economy, it’s the cost of the land itself that is floating ever higher. This cost is based mostly on speculation, rather than what it’s really worth. So who can we blame for fuelling this speculation bubble? I believe the blame rests mostly on the shoulders of those who benefit from speculation without having to take on any of the risk. And it’s the real estate agents (who make higher commissions based on higher house prices) who benefit from higher prices. I don’t think they’re playing fair.

Open the weekend edition of any Toronto daily and you’ll find a “New Homes and Condos” section with hundreds of prices. And the prices the real estate agents are paying big bucks to show you are the ones most likely to strike fear in potential new buyers. That is, the fear that they’ll never be able to afford a house unless they buy something – anything – right now before the prices climb even higher. Motivated buyers mean wealthy real estate agents, making a morally questionable trade even more shady.

Look, for example, at the average wages for Alberta’s real estate agents in 2007. The ever upward trend of house prices in Calgary, Edmonton and Fort McMurray is reflected in a six-figure average income for those who sell homes. According to Royal LePage, http://www.royallepage.ca/CMSTemplates/AboutUs/Company/CompanyTemplate.aspx?id=1506 between the first quarter of 2006 and the first quarter of 2007, average prices for a detached bungalow were up 55.2% in Edmonton and 29.2% in Calgary. And in Edmonton, condo prices went up 72.1% in one year. Assuming real estate agents are charging the same percentage and getting the same amount of business, their wages would go up proportionally to higher house prices. According to Alberta’s Ministry of Employment, Immigration and Industry, the salary of real estate agents in Alberta did just that, as they took in an average of $130,100 in 2007. http://www.alberta-learning.ab.ca/occinfo/Content/RequestAction.asp?aspAction=GetHTMLProfile&format=html&OCCPRO_ID=71001908 In provinces where house prices are less than those in Alberta, guess who’s making closer to forty grand? Recent statistics in New Brunswick suggest an annual income of $36,365 and in pre-boom Saskatchewan the average was a meagre $42,114. http://www.saskjobfutures.ca/profiles/profile.cfm?site=graphic&noc=6232&lang=en It’s hard to deny the pressing incentive for real estate agents to create artificially high real estate prices.

So how will I ever afford a house in a country where prices rise much faster than the wages? Perhaps I will consider a career change. Real estate is looking good.

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  1. Posted by: Mike on Mar 27, 2008 @ 7:12pm

    I realize that this might not work for everyone, but my solution to high real estate prices is to avoid major cities. Houses are pretty much impossible to buy in any major city, like London or San Francisco, so why not Vancouver? Meanwhile, there are good jobs in Guelph and other small cities, and houses cheap enough to actually buy.

  2. Posted by: j_ on Mar 28, 2008 @ 8:28pm

    Mike's got the idea. For example, I know a landlord who purchased a semi-detached house in Guelph to rent out for about $195,000 a few years ago; in a bigger city, like Mississauga (depending on what neighbourhood), the same size house is about $350,000. It takes about 20 minutes to get from Guelph to Mississauga, not that much time at all, and the price difference is staggering.

  3. Posted by: Jai on Mar 30, 2008 @ 11:31am

    I agree with Mike as well. Housing can be very affordable outside of larger cities/the GTA. To be able to afford a house of your own may require living out of your comfort zone, and also may require a bit of small-town living and a commute. It's a bit alarmist what has been written here; I just want to third the sentiment that there's plenty of housing outside major cities.

  4. Posted by: on Mar 31, 2008 @ 1:40pm

    I understand where you three are coming from, and I would say that my life plan includes avoiding living in a major urban centre. At the same time, commuting is wreaking havoc on our environment, and, I think, our social fabric. I don't see it as a positive solution at all - not unless our rail and bus systems improve a whole lot over the next couple years. Massive urbanization means serious problems for this planet. Not to mention the fact that we'll be needing to change our commuting habits really soon, due to the fact we're quickly exhausting our stores of oil.

  5. Posted by: marc on Apr 11, 2008 @ 10:05am

    So don't commute, work in your average sized town. People need to look harder for jobs, as noted above, there are many jobs in Guelph (for example).

  6. Posted by: boo on Apr 11, 2008 @ 11:44pm

    Hey, up north, you can buy a HUGE brand new home (3 car garage type u get the idea) ON the LAKE for about 500K...it sounds like alot but i know sum cruddy places goin for millions in the GTA that are no bigger than a bungalow!
    this is insane!!!
    if anything there is cleaner air up north! i kno where i come from theres some beautiful properties im eyeing since they are super cheap compared to down south...

  7. Posted by: on Apr 12, 2008 @ 10:39pm

    "there are many jobs in Guelph"

    yeah right, I'm looking for jobs that require my university education, not jobs at Stone Road Mall or the construction in the Suburbia south.

  8. Posted by: Ken on May 12, 2008 @ 11:26am

    Not sure about living in a smaller community like Guelph. Sure its cheaper than Toronto rent, but if you work in Toronto like most people, the quality of life in Toronto comes from the fact that I can walk 5 min to grocery, restaurants and 10-15 min subway to work, even something as simple as a poster, you don't need to go to a Monster Big Box mall, cuz down the street is a independent poster or CD store

    I lived in Uptown Toronto (YongeEg) for 5 years during my undergrad. Rent is expensive yes, but thats about it. Produce is so much cheaper in the various farmers markets in town, KensingtonChinatown area has the freshest produce, much cheaper than Ultra or No Frills. Plus, I dont need a car, with gas prices, do u really want to settle in Car cultured South Western Ontario?

  9. Posted by: Ken on May 12, 2008 @ 11:32am

    Also, their are jobs in Guelph, if you really didn't want to live in the city. You can shop at your big box stores, drive your HUGE SUV (or settle for unreliable transit).

    But the reality is, most jobs in this area are either blue collar or temp jobs with a glass ceiling at no more the 50 K... unless your in the Agri-Science industry. And even then, their are more Biology and Aggie grads at Guelph than the jobs available... even research jobs are temp now a days.

    IF your in the social sciences or business student like me, you can't make a career in Guelph. You gotta move to Toronto or Ottawa if you really want that 6 figure job. And even then you gotta work your ass off to get it. Once u do, Ottawa or Toronto doesn't seem so expensive anymore.

    I guess I lucked out in finding a career in Ottawa. But had I stayed in Guelph, I'd be stuck at a temp agency, doing low pay blue collar work or a crappy call center job that I hate.

    Instead, I`m a policy analyst in Ottawa, expected to be in the 6 figure range within 5 years.

  10. Posted by: Jason on Jul 15, 2008 @ 2:19pm

    Making money isn’t everything to life, and working in Toronto or Ottawa doesn’t give you the right to belittle hard working ‘blue collar’ people. Perhaps your 6 figure job as a policy analyst can teach you the difference between 'their' and 'there', college boy.

  11. Posted by: Chris on Sep 10, 2008 @ 2:19pm

    I agree with Jason, Ken is a douchebag! I think he needs a reality check; with the lack of skilled labourers and tradespeople around, there is likely a higher percentage of "blue collar" workers making 6 figures!

    I think it's just harder and harder for single people and single income families to purchase their FIRST home. After finishing at UoG in 2001, my wife and I were lucky to get into the housing market right before the boom. We've since moved and had three kids largely on a single income. If the price of our first Guelph house hadn't increased 26% in the 2 1/2 years between buying and selling, we never would have been able to move nor would we have been able to survive on a single income (even though it is still very tough!). Had we waited even 6 months we never would have been able to afford our first home!

  12. Posted by: on Feb 20, 2009 @ 1:27am

    housing can be affordable if person have a hard payment job and he easily afford the house on installments.Its very harder for a single person who earning money for his family to purchase the house.And in real estates in Toronto its very difficult.I also agree with all the comments which are given by some intelligent persons.People avoid to purchase the house in real estate in Toronto.But the peoples also want harder payments but don't want to do harder work.
    toronto corporate housing

    http://www.torontosuites.com

  13. Posted by: on Feb 20, 2009 @ 1:31am

    housing can be affordable if person have a hard payment job and he easily afford the house on installments.Its very harder for a single person who earning money for his family to purchase the house.And in real estates in Toronto its very difficult.I also agree with all the comments which are given by some intelligent persons.People avoid to purchase the house in real estate in Toronto.But the peoples also want harder payments but don't want to do harder work.

    http://www.torontosuites.com

    toronto corporate housing

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