Zooming

It may be minus 1 today with flurries in the forecast, but Edmonton wins. This is the only major Canadian city where the average-earning family can afford the average-costing house.

Elsewhere, fuhgeddaboudit. A survey this week finds across Canada the average home ($757,600) is simply unaffordable to the typical household (median income $79,876). That family would have to earn 141% more to buy. In fact all these average beavers can afford is a place selling for $315,000 upon which they can place a mortgage of $299,500.

In Toronto and Van, pffft. With average properties well north of a million, homes are 162% and 195% higher, respectively, than normal folk can swing.

But you know that. And this is why Edmonton wins. Even in Halifax the average house takes 83% more to acquire than the average household brings in. (By the way, did you hear about The Curv in YVR? Pre-sale condos have been flying off the shelf at an average of $2 million. While DT Toronto condos command $1,200 a foot, in this Van new-build they’re going for between $4,000 and $5,000. The top floor can be yours for $60 million.)

What to do about this situation?

Housing starts are failing us. A new BMO report highlights the fact a crashing real estate market has squished demand, causing builders to pause or cancel new projects. That three-million new homes target the feds pushed, half in Ontario, is fantasy. Never happening. Not until interest rates erode – which is expected (maybe) by mid-2025.

All the money being handed out from Ottawa’s ‘housing accelerator fund’ to cities that trash their zoning laws is not actually going into housing. It’s for municipal overhead, infrastructure and general financing. None of it will send a single shovel into action. Will allowing fourplexes in traditional SFH hoods result in a flood of new units? Nope. It costs millions to turn one home into a structure housing four families, none of which will sell for $315,000. We’re being zoomed.

Anyway, look at this chart of housing starts. What more do we need to say?

Building ‘millions’ of homes is not happening

Source: BMO, Statistics Canada

Now, speaking of zooming, here’s Equitable Bank.

The online outfit, best known for higher-interest EQ savings products, is trying to position itself as a saviour of people renewing mortgages at crushingly higher levels, with a 40-year amortization product. As you know, the longer the am period the lower monthly payments can be. However over time interest charges accumulate mightily, meaning there’s a big penalty to pay in the long run for lower carrying costs.

Those of you who are not irritating young people may also recall F, the elfin deity, who as Canada’s minister of finance mandated that CMHC offer insured 40-year loans, as well as 0% downpayments. That was a disaster. As a Con MP at the time, I tried to stop it. But F and his boss, Stephen Harper, ran me out of caucus for that and other sins. In the end 40-year ams did not last long once it became apparent we were about to blow a massive RE bubble.

So, what’s this EQ gimmick? Is it worth exploring if you have a 2% loan about to become a 6% headache?

Not a chance. The bank isn’t actually funding or holding the mortgage, just arranging it. An unnamed ‘funding partner’ will put up the dough with EQ underwriting, closing and servicing the loan. That could be problematic when you come up for renewal.

And while Equitable says this: “the bank seeks to lower monthly payment obligations, making home ownership or investment in properties more accessible amidst the current economic and affordability challenges” – it’s all wiped out by this:

Rates are expected in the 9% range given that this is an uninsured alternative lending product with an extended amortization and potential higher risks.

In other words, a $500,000 mortgage amortized over 25 years at 6% means a monthly of $3,200 with $450,000 left after 60 months. But the same loan amortized over 40 years at 9% requires a payment of $3,800. And, yikes, interest costs over five years total $219,000. Total interest cost for the 40-year period would be $1.32 million. Yes, on a half-million borrowing.

Friends don’t let friends borrow this way.

Just move. You know where.

About the picture: “Thank you for publishing Zorro and Felix’ pic as kittens,” writes Dan. “This is a mature Felix. He is a real cat who puts up with the humans in the house, probably mostly because we give him food. Nobody pets him if he doesn’t want to and nobody can get him inside the house if he does not want to. He cannot be bribed and generally is a very independent little fellow. Thank you for your blog and your continuing help win trying to decipher these difficult times. And I am not referring to the stock market or the real estate industry.”

To submit a picture of your beast, email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2023/10/27/zooming/