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Eug
Senior Member
I'm older, and I know a lot of professionals.
For getting a mortgage, it's more like 40% for a total debt service ratio (TDS), or 32% for gross debt service ratio (GDS). It sounds like what you're talking about is GDS. A bank will not give you a mortgage that would cause a GDS of 51%.
http://www.lendingmax.ca/artman/gross-debt-and-total-debt-service-ratio.php
cdr108
Senior Member
Eug
Senior Member
Having low interest rates isn't massaging the numbers. Assuming the maximum amortization period, the lower the interest rates, the lower the monthly payments. It's basic math. The TDS and GDS ratios still apply.
I think too many people are confusing that 90% number from Vancouver with TDS and GDS ratios. What that number means is that home prices are moving far beyond the reach of the typical Vancouverite, not that Vancouverites are somehow getting mortgages with 90% TDS or GDS ratios.
CN Tower
Banned
Ontario's dwindling appeal to immigrants prompts funding cut from ottawa
http://www.theglobeandmail.com/news...ompts-funding-cut-from-ottawa/article2250589/
So much for the population growth argument to sustain prices.
http://www.theglobeandmail.com/news...ompts-funding-cut-from-ottawa/article2250589/
So much for the population growth argument to sustain prices.
Eug
Senior Member
That article specifically states that Ontario still gets over half of all new Canadian immigrants.
cdr108
Senior Member
sorry, my lack of punctuation / grammar confused situations.
i was saying people are qualifying for more than the historical 3.5x income because 1) some applicants are massaging their incomes, etc and 2) low interest rates are allowing ppl to buy more because the monthly payments are 'affordable', at least until one's current term is up.
jeff316
Active Member
It's all anecdoctal but in my personal experience I gotta concur with Eug. My cohort is pushing 30 and we're 100 percent yuppies, generally 110-140k household income - I'm very nosy
)) so of the 11 I know that have bought houses since 2009 (and willingly divulged costs/payments), only one put down less than 20% (and they likely exceed the average income range.) Two people who are making 120k total can save 25-30 grand annually relatively sweat free if they don't have a tonne of student debt, pay middling rent and live reasonably.Again, caveat, totally anecdotal, influenced by profession and age and class and education and all that...of course, there definitely are people at the margins pushing the limits of what they can afford - absolutely - but this notion that everyone is buying 500k lofts or 600k semis with only 40 or 60 k down is not always reality
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Eug
Senior Member
I was lucky enough to have bought in the 90s before the boom went into full gear, but yes, one thing I did was live relatively cheaply like I was a student, for many years after I was gainfully employed.
redfirm
Active Member
It's all anecdoctal but in my personal experience I gotta concur with Eug. My cohort is pushing 30 and we're 100 percent yuppies, generally 110-140k household income - I'm very nosy
Again, caveat, totally anecdotal, influenced by profession and age and class and education and all that...of course, there definitely are people at the margins pushing the limits of what they can afford - absolutely - but this notion that everyone is buying 500k lofts or 600k semis with only 40 or 60 k down is not always reality
Jeff, nobody here claims "everyone is buying 500K lofts or 600k semis with only 40 or 60 k down". You don't need "everyone" in order to have a bubble. What matters is the size of that marginal batch who are fully leveraged: 15-20% is more than enough to create quite a panic and bubble burst. With our debt load per capita at historic levels it is safe to assume that significant portion of our pupulation carries huge debt. Since you like anecdotal stories: I am tax accountant and have some insight in both corporate and personal finances of fairly significant # of taxpayers. Trust me, there is a lot of people with huge mortgages and other loans compared to their income. Not "everyone" in Iceland, Spain, USA, etc. was fully mortgaged ... but there was enough of them to cause bubble bursts. Add to that all our "investors" and speculators who are buying rental properties downtown which won't even cover your carrying costs, let alone make some positive cash-flow. Plus all the bad news all around us, from Europe to USA, China bubble to some domestic concerns. TSX doesn't look good either, etc. My point is: something is wrong here. These low interest rates tell a scary story. People should use these low rates to pay off their mortgages, not try to get into their dream McMansions with 20%.
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interested
Senior Member
^^^
I think Redfirm's advice is very apropos.
For those who have 20 or 30% equity, they are probably going to be OK.
Those at the margin are more worrisome and should be using these low rates and the escalating prices so far to build equity rather than further extend themselves. The way things played out was that the first people defaulted, lowering prices on housing, which then pushed the next group of people to the margin. Even people who had 30% equity in some locations were suddenly underwater with their mortgages and had negative equity. Granted, if speaking of the US and non recourse mortgages, that lends itself to people walking away which does not exist in Canada (though I am not sure if it does exist in Alberta). In any event, if things deteriorate, they can snowball and drag even seemingly well capitalized individuals down if prices start to decrease thereby wiping out their equity or significantly decreasing it. And the question is then, what happens when they have to renew and no longer qualify.
Should the world get its act together, I would expect commodity prices to rise, interest rates to rise, and hopefully wages to rise but the reality is that the past 10 years have seen minimal wage increases compared to price of housing increasing (save for big exec salaries) and at least the first 7 years were during good times. My point is I am not sure wages will increase to make up for the other increases.
Not to be "bearish" but there is very little room for mortgage rate decreases; so the upside potential remains small whereas if things finally improve (and they will ultimately unless we are Japan and in for the "lost decade here" as well; and I note that property values in Japan came down severely), then as they improve the weakness of those at the margin will become clearer.
I think Redfirm's advice is very apropos.
For those who have 20 or 30% equity, they are probably going to be OK.
Those at the margin are more worrisome and should be using these low rates and the escalating prices so far to build equity rather than further extend themselves. The way things played out was that the first people defaulted, lowering prices on housing, which then pushed the next group of people to the margin. Even people who had 30% equity in some locations were suddenly underwater with their mortgages and had negative equity. Granted, if speaking of the US and non recourse mortgages, that lends itself to people walking away which does not exist in Canada (though I am not sure if it does exist in Alberta). In any event, if things deteriorate, they can snowball and drag even seemingly well capitalized individuals down if prices start to decrease thereby wiping out their equity or significantly decreasing it. And the question is then, what happens when they have to renew and no longer qualify.
Should the world get its act together, I would expect commodity prices to rise, interest rates to rise, and hopefully wages to rise but the reality is that the past 10 years have seen minimal wage increases compared to price of housing increasing (save for big exec salaries) and at least the first 7 years were during good times. My point is I am not sure wages will increase to make up for the other increases.
Not to be "bearish" but there is very little room for mortgage rate decreases; so the upside potential remains small whereas if things finally improve (and they will ultimately unless we are Japan and in for the "lost decade here" as well; and I note that property values in Japan came down severely), then as they improve the weakness of those at the margin will become clearer.
jeff316
Active Member
Believe me, I get that ... nothing in my post contradicts anything you posted there so I'm not sure why you're responding directly to me with the above post. The question is how large is the marginal batch and how indebted are they - something none of us fully know. What people read in the papers, see on tv and read on the internet are a variety of very absolutist and increasingly defensive viewpoints from *both* extremes backed up by numbers about as carefully selected as a potato for a bag of potato chips. Just like it's easy to get the idea that all is a-ok hunky dory (if one wants to), it's also easy to get the idea that a big chunk of buyers are in that marginal batch, like the original poster who was implying that anyone under 30 buying a place is likely to have to overleverage. They may all be fools, who knows, but they're not all marginal.
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interested
Senior Member
^^^You are absolutely right Jeff. How many are at the margin is the $64000 question.
I guess being somewhat conservative in my views, I would rather plan that there are more than one expects at the margin and allow for a decrease than hope that those at the margin are nominal. If that is the case, at least one gets downside protection. If those at the margin are nominal, it still does not explain in a rational basis why we should expect continued house price increases in the present environment. That said, perhaps next year we will again be talking about 5-8% increases in prices. Still does not mean that it makes a lot of sense from my perspective.
I guess being somewhat conservative in my views, I would rather plan that there are more than one expects at the margin and allow for a decrease than hope that those at the margin are nominal. If that is the case, at least one gets downside protection. If those at the margin are nominal, it still does not explain in a rational basis why we should expect continued house price increases in the present environment. That said, perhaps next year we will again be talking about 5-8% increases in prices. Still does not mean that it makes a lot of sense from my perspective.
jeff316
Active Member
^^ and I think that's a very prudent and valid way to plan, is pretty much my m.o. too and it may turn out to be right in the end. I just find a lot of this discussion very quickly veers to the extremes, bears baiting bulls and bulls hunting bears. It's an emotional topic for some and that's understandable. There are factors that may explain both sides and and while we all have our hunches the problem is we don't know how far skewed in each direction reality really is. But that's what makes it an interesting problem to discuss I guess.
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redfirm
Active Member
Believe me, I get that ... nothing in my post contradicts anything you posted there so I'm not sure why you're responding directly to me with the above post. The question is how large is the marginal batch and how indebted are they - something none of us fully know. What people read in the papers, see on tv and read on the internet are a variety of very absolutist and increasingly defensive viewpoints from *both* extremes backed up by numbers about as carefully selected as a potato for a bag of potato chips. Just like it's easy to get the idea that all is a-ok hunky dory (if one wants to), it's also easy to get the idea that a big chunk of buyers are in that marginal batch, like the original poster who was implying that anyone under 30 buying a place is likely to have to overleverage. They may all be fools, who knows, but they're not all marginal.
Fair enough. I thought that your "everyone.." statement was for people on this board who are less than excited about the future of Toronto r/e ... like me and many others.
Just out of curiosity - going back to your "11 friends" statement: you said only one put less than 20%. How much would you say was the average % downpayment? And what was the typical price of r/e you guys were buying?