Cost of housing in Canada

[suffolkowner]

Might be my bias but the cars on the road are 100x worse than the trucks IMO. As far as training, etc goes that is determined more by your insurance company than anything otherwise in ON you can grab an A restricted and your air brake endorsement and go

 

[mariomike]

in ON you can grab an A restricted and your air brake endorsement and go.

Wasn't always the way it is now.

Most company fleets were quite cognizant of their image and operations; their logos were pasted all over their rigs, many held 'rallies' for their drivers, etc.

they were the 'knights of the road'.

Back when they really were Knights of the Highway.

I'm always amazed when I read about a rig simply driving into either the back of another rig or the tail end of the stopped traffic. Distracted (watched TV on the tablet in the middle of the steering wheel)? Inexperience? Too fast? Who knows.

Look in your rear view mirror and wonder, Carrier, or Killer?

 

[IKnowNothing]

Long Post Warning

Some numbers to provide context about the "average" situation over the next couple of years, and impending doom/crash/defaults. This is assuming that the value of the "average" house is transitive between years ei. a house brought at the average price in 2018 could be sold at the average price in 2023, and that the average homebuyer has taken zero initiative to improve their situation via prepayment, blend and extend etc, and nothing to worsen via aggressive HELOC usage.

2023 - bought in 2018 (25 yr amortization, 5 year fixed, current rate 5.59)

• July Average house price - 545,700
• July Discounted 5 year rate - 3.04
  • Person A.
• Payment at 5.5% down - $2,549
• Balance @ end of 5 - $458,763
• Renewal (maintain amortization) - $3,162 (124% of initial)
• Renewal (back to 25 year) - $2,824 (111% of initial)
  • Person B
• Payment @ 20% down- $2075
• Balance @ end of 5 - $373,434
• Renewal (maintain amortization) - 2574
• Renewal (back to 25 year) - $2,291

So the average 2018 buyer and mortgage holder has oodles of equity at renewal based on 2023 valuations, and is facing a 24% payment bump that can be mitigated down to 11% by tacking on another 5 years with a 25 year refi - yes this not ideal as it adds to the interest cost, but is a very reasonable approach to avoid default.

2024 - bought in 2019 (25 yr amortization, 5 year fixed, current rate 5.59)

• July Average house price - 525,900
• July Discounted 5 year rate - 2.49
  • Person A.
• Payment at 5.3% down - $2,318
• Balance @ end of 5 - $438,292
• Renewal (maintain amortization) - $3,021 (130% of initial)
• Renewal (back to 25 year) - $2,698 (116% of initial)
  • Person B
• Payment at 20% down- $1883
• Person B Balance @ end of 5 - $356,017
• Person B Renewal (maintain amortization) - 2,454
• Person B Renewal (back to 25 year) - $2,192

So the 2019 buyer also as oodles of equity, enough for person A to survive the market collapsing to 72% of current while still maintaining an 80% loan to value at renewal. The renewal jump hits proportionately harder, but due to slightly lower purchase price and lower initial rate their payments will actually be lower than the 2018 buyer.

2025 - bought in 2020 (25 yr amortization, 5 year fixed, current rate 5.59)

• July Average house price - 561,600
• July Discounted 5 year rate - 1.89
  • Person A.
• Payment at 5.6% down - $2,306
• Balance @ end of 5 - $460,797
• Renewal (maintain amortization) - $3,176 (138%)
• Renewal (back to 25 year) - $2,837 (123%)
  • Person B
• Payment at 20% down- $1879
• Balance @ end of 5 - $375,487
• Renewal (maintain amortization) - $2,588
• Renewal (back to 25 year) - $2,312

So the 2020 buyer sees yet higher proportional rate differential, but their overall situation in terms of renewal payments is very comparable to the 2018 buyer. The the 2020 buyer also has the advantage of 2 extra years to plan plus more expenditures become flexible in the long run. Person A can maintain an 80% LTV at renewal at 77% of current average price.

2026 - bought in 2021 (25 yr amortization, 5 year fixed, current rate 5.59)

• July Average house price - 693,900
• July Discounted 5 year rate - 1.68
  • Person A.
• Payment at 6.4% down - $2,757
• Balance @ end of 5 - $561,983
• Renewal (maintain amortization) - $3,874 (140% of initial)
• Renewal (back to 25 year) - $3460 (125% of initial)
  • Person B
• Payment at 20% down- $2266
• Balance @ end of 5 - $461,853
• Renewal (maintain amortization) - $3,183
• Renewal (back to 25 year) - $2,843

Percentage payment increase very comparable to the 2020 buyer, but due to the price run up the actual dollar amount is significantly higher. The real sticky part is that the minimum down payment Buyer can only see a 7% hit to current average price and maintain an 80% LTV, with anything more than a 25% reduction putting them upside down. That's risky.


For anyone still reading
A. for the next 3 years (the 2018, 2019, and 2020 buyers cohorts) have reasonable off ramps to avoid default at renewal, and have a larger amount of wiggle room in terms of paper equity loss without going upside down. People will be pinched, but we shouldn't see massive defaults

B. IF (Big IF) rates stay as high as they are until 2026-2027 the the 21-22 buying cohort that bought at peak prices are going to take it on the chin. Massive payment spike, and decent chance of being upside down if we have any major market downturn.

C. I can't find any statistics, but based on news stories and anecdotes, an outsized percentage (historically) of these mortgages were co-signed. Parents are on the hook, and that's another layer of asset base and cash flow that will have to/ can make lifestyle changes to prevent widespread default.

 

[Eaglelord17]

Thats also assuming they are all fixed rate mortgages which there are many which aren’t. Those small percentage raises matter when you are already stretched to your limit, inflation is raising the price of everything else, and wages generally aren’t keeping up.

The most dangerous ones are the fixed payment variable rate mortgages which have gotten fairly popular in recent years. Approximately 1/3 of the mortgages in this country are done that way.

The biggest issue with those mortgages is called ‘trigger rate’ which is when the fixed payment no longer pays on to the principal and only pays the interest. Over half those mortgages have already hit that.

Why this matters is when those mortgages go to renew their payments will have to go up as high as 80-100% as over the last 5 years they have made no progress on their loan. Basically earning no equity in the home and in some cases will have a higher principal on the property than when they started. Couple that with lower average prices, they can’t sell the home for what they have in it.

For a average price home this means they would either have to basically double the payment to make progress or put about 80k down to make up for the lack of progress. Odds are they don’t have 80k to put down especially if they are already maxed out.

Those are the people who have the highest risk of defaulting. The amount of money those people are paying in interest as well is insane. On a 25 year fixed rate mortgage you are basically doubling the cost of the home over the lifetime of the loan. Imagine paying for 5 years at the most expensive point and the loan hasn’t even decreased one penny. Renting would have been a much better decision for those people.

 

[dapaterson]

In part, bank stocks are trending down because they are increasing reserves for just those problems. The market is already assuming those issues in the future.

 

[lenaitch]

Might be my bias but the cars on the road are 100x worse than the trucks IMO. As far as training, etc goes that is determined more by your insurance company than anything otherwise in ON you can grab an A restricted and your air brake endorsement and go

I wholeheartedly agree that the overall state of driving competence is less than stellar; however, I'm not sure I agree with the order of magnitude.

You have a point about the insurance costs being somewhat of a regulator (I assume large-truck commercial rates in Ontario are as off the dial as the rest of us), but premuims simply get passed through to the consumer in the end. It used to be all classes of licence in Ontario had to be tested by the government (MTO). Now I'm not sure they do any at all, it is mostly jobbed out to 'approved' private schools. Fair enough, but the MTO isn't auditing or inspecting the schools either.

 

[mariomike]

Garden suites are in our local news lately .

 

[QV]

Been a steady climb since March of 2022.

https://www.cbc.ca/news/business/bank-of-canada-july-meeting-1.6904330

 

[Good2Golf]

https://www.cbc.ca/news/business/canada-inflation-rate-june-1.6909635

Inflation heading down again…BoC/GoC thoughts…stand by Canadians to expect another increase in the bank rate to make sure that inflation keeps decreasing…perhaps not even 0.25% but a resolute 0.50%…to be sure. After all, April to May decrease in inflation from 4.4 to 3.4 was worth the 12 July increase of 0.25%.

I mean…see…inflation is still not yet at 2%…

(Pretend not to see that the only component of inflation increasing is mortgage inflation…30% and climbing…sure gasoline is deflating at 20% and food is only 10% inflation, so clearly another round of interest increases, inclusive of the impact to mortgage inflation, should help reduce inflation overall… )



#YCMTSU

 

[Brad Sallows]

I've noticed a surge in articles musing about the wisdom of the BoC's actions, and noticed at least one thing many are not bothering to write about, which tends to deprecate the wisdom of heeding anything they have to say on the matter.

A problem is that GoC is working at cross purposes to BoC.

The BoC's main (pretty much only) tool to reduce inflation is to increase the interest rate.

One of GoC's tools is to restrain spending, which it is not doing.

So one hand is bailing the boat, and the other is pouring water back in. And standing to one side are all those in the media carrying the water for GoC by pointing fingers only at the BoC.

 

[Furniture]

I've noticed a surge in articles musing about the wisdom of the BoC's actions, and noticed at least one thing many are not bothering to write about, which tends to deprecate the wisdom of heeding anything they have to say on the matter.

A problem is that GoC is working at cross purposes to BoC.

The BoC's main (pretty much only) tool to reduce inflation is to increase the interest rate.

One of GoC's tools is to restrain spending, which it is not doing.

So one hand is bailing the boat, and the other is pouring water back in. And standing to one side are all those in the media carrying the water for GoC by pointing fingers only at the BoC.

The BoC was also clear that housing supply problems were being made worse by increased immigration. It's interesting that the BoC is openly going against a GoC agenda item.

 

[Brad Sallows]

The BoC was also clear that housing supply problems were being made worse by increased immigration. It's interesting that the BoC is openly going against a GoC agenda item.

The BoC has its one tool, and has its one aim (to get inflation under 2%). Every thing any other part of government does that contributes to moving inflation in the other direction essentially forces the BoC to try its one thing a little harder until its aim is met. I suppose there are at least three possible solutions:

• all the other parts, or enough of them to matter, could stop pulling the other way
• the BoC could just shrug and stop trying to hit the target, or move the target upwards
• the GoC could end the BoC's "independence" and just make it a plainly politically directed entity

 

[Rifleman62]

The Liberals and NDP continue to destroy Canada in many ways. Bankrupting home owners/renters is one way.

 

[Brad Sallows]

The Liberals and NDP continue to destroy Canada in many ways. Bankrupting home owners/renters is one way.

I don't credit them with enough forethought to plan that. I can only credit them with simple ignorance, indifference, and inattention. When interest rates hit the bottom and stayed there, public spending enthusiasts repeatedly pointed out that "cheap money" was an opportunity to borrow lots of it. Few really bothered to think through the fact that ordinary people also had access to "cheap money" and to consider the implications of what that would mean for the prices of whatever people would want to spend their "cheap money" on. It's the same with every plan/program to push money to people in one way or another: it enables people to spend more, and one of the things some people are going to "spend more" on is the offers they make on real estate.

 

[foresterab]

https://www.cbc.ca/news/business/canada-inflation-rate-june-1.6909635

Inflation heading down again…BoC/GoC thoughts…stand by Canadians to expect another increase in the bank rate to make sure that inflation keeps decreasing…perhaps not even 0.25% but a resolute 0.50%…to be sure. After all, April to May decrease in inflation from 4.4 to 3.4 was worth the 12 July increase of 0.25%.

I mean…see…inflation is still not yet at 2%…

(Pretend not to see that the only component of inflation increasing is mortgage inflation…30% and climbing…sure gasoline is deflating at 20% and food is only 10% inflation, so clearly another round of interest increases, inclusive of the impact to mortgage inflation, should help reduce inflation overall… )

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#YCMTSU

I don't claim to be a smart economics person but I can understand my income stream and bills pretty decent and know how to budget. What I can't figure out is how the BoC calculates inflation...

Mortgage interest costs and housing costs are consistently in the news...heck my own taxes are annually up just about a guaranteed +5% every year...but somehow get reported as close to flat? If mortgages represent a +30% increase and that's 40% of most folks monthly income...it's not good.

Hypothetical situation...take home pay of $4000/month

House @ 40% represents - $1,600 /month
Vehicle payment - $400/month
Taxes and insurance - $600/month
Utilities (gas/power/internet) $750/month
Groceries - $500/month

Subtotal $3850/month or what I would call living paycheck to paycheck with no fiscal future. A 3.75% safety margin

Note that $4000/month is a professional income (not minimum wage) and I'm looking at a 300K home mortgage, basic vehicle, no daycare. It's above average wages according to Census.

Now add the +30% mortgage costs over three years - Mortgage jumps to $2080/month
Food is up +10%/annually x3 years - jumps to $665/month
Taxes are up the +5% annually - jumps to $694/month
Utilities seem to be up 10% minimum annually (carbon tax) jumps to $998/month

Now you're smart with the money and paid the car off and got a 2% raise (assuming you got anything)
Monthly take home money is now $4244 minus the $4,437 in bills monthly...a loss of $193/month or a negative 4.5% loss monthly.

Wages are up, you've been smart with your money and your fiscal situation is significantly worse by 8.25% in three years.

I honestly do not know how anyone can afford to make a go of it in most major centers in Canada when I look at the wages offered vs. cost of rent alone. Add trying to raise a family in there and it's not a lot of hope for the future unless you go to multi-generational housing or accept there is no future and stop trying to get ahead.

Thankfully the house, vehicles and bills are all paid off so I see the difference in cash flow that makes but that's only due to a) buying less than the bank wanted me to buy, b) paying down loans as fast as possible with any OT possible c) fixing and doing what I can personally to reduce maintenance costs d) living in a rural area with reduced property costs and increased wages to offset the lack of "city" life.

Looking at the nephews starting out and I truly wonder what is in store...let alone for my own kid.

 

[foresterab]

Canadians' vacation plans hit by inflation, airline delays: Leger survey - BNN Bloomberg

A third of Canadians have changed or cancelled their vacation plans due to inflation, according to a new survey by Leger.

www.bnnbloomberg.ca

And this article starts to show how that hits home...less vacations, less dining out, fewer excursions...all of which are at least significant summer employment and revenue streams across the country.

 

[Eaglelord17]

The Liberals and NDP continue to destroy Canada in many ways. Bankrupting home owners/renters is one way.

Some people need to be bankrupted otherwise these insane prices shall be locked in.

This is more a story of Canadian greed and people living well beyond their means on cheap debt than the Liberals and NDP seeking to drive up prices. Canadians were the ones who chose to go crazy with spending on homes, sight unseen for unheard of prices. This is just the opposite reaction to said insanity.

If anything the Liberals and NDP are prolonging the crash which is coming. It’s better to pull off the bandaid and get it over with. It effects less people long term than try and prevent it causing harm for everyone long term.

Bankruptcy isn’t the end of the world. I had a buddy which bought in fort mac during the oil boom. Fast forward a couple years his extremely high paying job was gone and his 800k house was only worth 200k. He declared bankruptcy and in his own words said it was the best decision he ever made. The only decision he could have made better was doing it sooner as he held out for a very long time trying to make it work.

Now he’s doing just fine, has a house again, and decent job. He also refuses to put himself in any sort of financial danger.

 

[Brad Sallows]

And this article starts to show how that hits home...less vacations, less dining out, fewer excursions...all of which are at least significant summer employment and revenue streams across the country.

Of course, starting with less vacations, dining out, and excursions is how "some people" get to a debt-free position.

Less spending == more saving == larger down payment on high-value items == less debt == less money paid on interest == more saving...

 

[PuckChaser]

$500 a month for groceries? Are you just eating KD? Try double that for decent quality food for a family of 4.

 

[Good2Golf]

I don't claim to be a smart economics person but I can understand my income stream and bills pretty decent and know how to budget. What I can't figure out is how the BoC calculates inflation...

Mortgage interest costs and housing costs are consistently in the news...heck my own taxes are annually up just about a guaranteed +5% every year...but somehow get reported as close to flat? If mortgages represent a +30% increase and that's 40% of most folks monthly income...it's not good.

Hypothetical situation...take home pay of $4000/month

House @ 40% represents - $1,600 /month
Vehicle payment - $400/month
Taxes and insurance - $600/month
Utilities (gas/power/internet) $750/month
Groceries - $500/month

Subtotal $3850/month or what I would call living paycheck to paycheck with no fiscal future. A 3.75% safety margin

Note that $4000/month is a professional income (not minimum wage) and I'm looking at a 300K home mortgage, basic vehicle, no daycare. It's above average wages according to Census.

Now add the +30% mortgage costs over three years - Mortgage jumps to $2080/month
Food is up +10%/annually x3 years - jumps to $665/month
Taxes are up the +5% annually - jumps to $694/month
Utilities seem to be up 10% minimum annually (carbon tax) jumps to $998/month

Now you're smart with the money and paid the car off and got a 2% raise (assuming you got anything)
Monthly take home money is now $4244 minus the $4,437 in bills monthly...a loss of $193/month or a negative 4.5% loss monthly.

Wages are up, you've been smart with your money and your fiscal situation is significantly worse by 8.25% in three years.

I honestly do not know how anyone can afford to make a go of it in most major centers in Canada when I look at the wages offered vs. cost of rent alone. Add trying to raise a family in there and it's not a lot of hope for the future unless you go to multi-generational housing or accept there is no future and stop trying to get ahead.

Thankfully the house, vehicles and bills are all paid off so I see the difference in cash flow that makes but that's only due to a) buying less than the bank wanted me to buy, b) paying down loans as fast as possible with any OT possible c) fixing and doing what I can personally to reduce maintenance costs d) living in a rural area with reduced property costs and increased wages to offset the lack of "city" life.

Looking at the nephews starting out and I truly wonder what is in store...let alone for my own kid.

Double whammy for those who, as the relenting crush of mortgage renewals at 2-3x their current rate come due, will find themselves potentially/likely taking a haircut on their house, then finding that rentals (because they no longer qualify for a mortgage of the house they had) aren’t any less expensive, and there are some no-duff tough times ahead.

Some people need to be bankrupted otherwise these insane prices shall be locked in.

This is more a story of Canadian greed and people living well beyond their means on cheap debt than the Liberals and NDP seeking to drive up prices. Canadians were the ones who chose to go crazy with spending on homes, sight unseen for unheard of prices. This is just the opposite reaction to said insanity.

If anything the Liberals and NDP are prolonging the crash which is coming. It’s better to pull off the bandaid and get it over with. It effects less people long term than try and prevent it causing harm for everyone long term.

The R-word is coming…how it got delayed so far I’m not sure. I spoke with my financial advisor and it’s likely a small-r mid-2024 start, and if it holds off a bit, say 2025Q1, will likely be BIG-R.