Wednesday, February 07, 2007

calculations

So I was goofing around with this Mortgage Qualifier Calculator at the Glob of Mucous, and found some interesting realities. I took screen shots of different scenarios to demonstrate just what can be afforded.

The first shot reveals that a couple, both earning the average wage in the GVRD*, could afford to buy a house (or apt., condo, etc., but you would have to add in condo fees) worth $316,507 - with the respectable sum of $50K for a down payment, and a 25 year amortization. This is without GST (applicable to a new, or renovated property). The monthly P&I payment would be $1,660.17. That is close to 30% more than I pay for rent on a SFH with a view. Nothing is calculated for repairs, etc.

click for larger view

With 0% down, you can buy $263,906 worth of dwelling.

click for larger view

OK, so let us say that that couple will buy a new construction (add in GST, but not condo fees), still zero down, but going for a 35 year amortization. They could buy a bit more - $288,272.

click for larger view

All these calculations are at a 5.5% mortgage rate, which is what ought not to be too hard to get for a 5 year loan, for most people. Rates will go up sooner or later, so re-financing could have you looking at 7%, or more. And, is there anything worth buying in the GVRD for those prices?

I did a quick MLS search in that price range for Van. East, and came up with 95 condo properties. The cheapest was $1,000 more than the lowest number above. Interestingly, a lot of the places for sale boasted that they had never been lived in.

The same price range search in Van. West turned up 80 properties. freako - is this your price compression revealing itself?

The long and short of it is that there are 175 condos, or apartments, for sale in Vancouver proper that could be afforded by a couple making the average wage*. There must be more than 175 couples looking for a condo in this fair city. Do you hear the din of bidding wars?

Almost needless to say, there are 0 houses for sale in this town, in that price range. Something's gotta give.

What is wild to me is that the reported earnings only rose $156 per annum when comparing 1993 to 2002. In 1994 the average wage was more than $4,000 more. I don't do graphs, but maybe one of you who does could chart the average wage with the average house prices. VHB may have already done so, so look there (my quick search did not find it).

Disclaimer - Information is made available to you as a self-help tool for your independent use and are not intended to provide investment advice. I can not and do not guarantee it's applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. I encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Go ask yer Momma.

*This number was found here. Source: Canada Revenue Agency
Prepared by : BC Stats, July 2006

9 comments:

fun and mental said...

sweet, i get to be the first comment.

here's an interesting fact from the mortgage world.

let's take a hypothetical couple, they make 80k between them and have 50k for a down payment, good credit and no debt.

one year ago they would be qualified to buy up to a max purchase of $370k

then, the insurers increased the allowable amortization to 40 years. instantly this couples max purchase price jumped to $430k

but if that wasn't enough, genworth (the other insurer, and a private company for all you cmhc tax payer dollars at stake haters out there) decided they would do away with the centuries old (well maybe 35 yrs old) standard qualifying guidelines of 32/40 for debt ratios.
now, if your credit is good enough, you are qualified on a debt service ratio of 44/44

the couple in question could now purchase up to a maximum of $580k!!!

genworth has just propped a ladder up against the ol' affordibility wall and given this market a little more juice.

btw, i'm busy as hell these days.

Anonymous said...

Interesting. If the average wage for a taxfiler is $40-ish, and the median family income is $57-ish... Hm.

Anyway, I think your hypothetical family is very comfortably in the top 50% of families, if the median sits at $57ish.

And if your average couple have a family - with all the extra expenses that 'making it' families buy with dependants, like RESPs and insurance and RRSPs - how many of those condos will suit?

Untenable situation, I say. Unless, of course, that average/above median couple is now rendered irrelevant in the New Vancouver Paradigm.

WoodenHorse said...

Great Post Solipsist.

Is anyone following Ben Jones' site? The new lately regarding sub-prime lenders is really....really ugly.

BTW: I didn't know this, but HSBC is the 3rd largest sub-prime lender in the US as measured by dollar volume. Based on the news yesterday and today, they've really stepped in a mud patty.

Van Housing Blogger said...

Great post, solipsist

fun and mental:

I agree that genworth may have extended affordability.

However, I have three doubts about this:

a) in the US, housing crashed even though credit was still available. Mortgage industry simply could push on the string any further when people decided they didn't want to buy anymore

b) the market for non-standard mortgage credit appears to be in serious trouble globally. Won't this affect the Canadian players as well - they must sell off their mortgages to global buyers, yes?

c) supply supply supply. It's coming. For condos, anyway.

solipsist said...

Thanks for the great commentary all. Do I get to make the last comment?

f&m - I take it you are in the mortgage biz. How the hell did "they" ever decide on 44/44? Is it just to give the illusion of affordability where none exists? Would that just be for an insured mortgage? If so, I can understand CMHC backing those (with the backing of the Canadian taxpayers), but what about Genworth? Who is backing them? Is that the old GMAC group?

And to what purpose did "they" change that ratio? Perhaps to keep the un-washed masses from becoming revolutionary?

I don't get it. Is everyone now mad (as in crazy)?

fun and mental said...

solop,
yes, guilty, i'm in the mtg bus.

i really don't know how 'they' arrive at the numbers, going further, how did they arrive at 32/40 in the first place? i'm sure they have a whole stable of propeller heads somewhere figuring this out. the one thing i do like about it is that it is credit driven. your score has to be over a certain amount to get the 'benefit'

it is just for insured mortgages. do note, that the cmhc is not yet following suit.

genworth is really GE, which obviously is one of the largest multi-nat corps out there.

patriotz said...

The reason why back in the stone age you had to have a 25% down payment and 25 year amortization is that lenders believed that if you went beyond this it would decrease the chances of getting their money back.

However with the "new paradigm" of ever-increasing house prices this is no problem. Until house prices start, er, falling. Which is why the "sub-prime" market in the US is self-destructing.

Fiddling with down payments, amortization and debt service ratios does not change fundamentals. They just yank on the demand curve so that it goes up in the short term and goes down later. Combine this with an increase in supply due to higher prices and you have the recipe for a bust down the road.

Note that Japan did the same thing and ended up with a bust even with very little new supply.

Kely said...
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Luxury said...
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