August 6, 2012

Tough Choices Monday



As happens when greed overtakes sanity, average houses in most places in Canada have become unaffordable for the average family. Too often people are having to choose between having a house and having a life.

For most people a house represents the largest single purchase they will ever make. Unfortunately, it can also be one of the most emotional. When our acquisitive desires meet our nesting instinct, rational decision making often ends up being a victim of our illusions.

While many countries around the world have already seen their housing bubbles pop, Canada's has continued to inflate until recently. After over a decade of annual increases, house prices have reached a historically high level relative to income. Unfortunately, average income has not been inflating much since the 1980s.

It used to be that a household needed to spend about 30% of pre-tax income to pay housing-related expenses. Not any more.
"For the second quarter of 2011, Vancouver residents could expect to spend 92.5% of their pre-tax income on homeownership costs, including mortgage payments, utilities and property taxes."
Vancouver is the country's most expensive market, but in Canada as a whole, servicing a mortgage is still requiring almost half of pre-tax income. While we all need somewhere to live, giving half of your monthly paycheck to the bank is extreme. Having to turn over your whole check sounds more like robbery.

There is a time to buy a house or property. A time when there is more balance and you can enjoy both a house and a life. In most places in Canada, including where I live, that time is not now.

Is it possible to own a house and have a life in your area?

14 comments:

  1. It's possible in the UK if you are a couple earning a moderate amount (20K) or one person earning a decent amount (40K) And I live in quite an expensive area, and not in the smallest possible space.

    From what I have seen of rental prices here, it actually makes more sense to buy than rent (If you can save a deposit).

    Personally, I take home about 1K per month, and having done a quick search on the internet, the cheapest 1 bed flat in my town is £350 per month, and the cheapest within a 15 mile radius is £300 per month. So although it would be possible for me to afford to rent a place, i'd be unable to have my pets, or a garden, and most or all of my income would go on basic survival/running car to get to work I think.
    Have just done a rough calculation on a mortgage on a similar flat and the monthly repayments would be about the same as the rent...

    So...if you have savings or can borrow a deposit from friends/family...financially here (if interest rate are low) renting is not cheaper.

    I think, for me, here and now, the choice is between living with parents/boyfriend (who owns is own house) and having a life, or living on my own and having nothing spare!

    I'm sorry if that was a little bit of a ramble, I was thinking as I went along :)

    ReplyDelete
    Replies
    1. Thanks for sharing your thoughts and filling us in on the UK situation. In Canada a person can expect to pay an average of about 1000 dollars in rent per month. Owning your own home costs even more.

      Many people are resorting to renting out a basement suite or a room just so they can pay the mortgage.

      In a rental situation you need two wage earners to afford it, so many people take roommates to make ends meet.

      Housing coops are also a safe, affordable, and accessible option in most areas of the world, but not one that most people know about.

      Delete
    2. I'm not sure that i have heard of them- at least not under that name! Will have a read of your post about them.

      Delete
  2. Not really, thats why me and hubby's plan for early retirement is go all wilderness disappearing in less than 4 years now and just give up money and the demands of society and it's consumerism altogether :)

    ReplyDelete
    Replies
    1. That sounds like a great plan to me - going off-grid in the wilderness has always been something that interests me.

      Disappearing has its appeal, too. Linda and I would disappear into the wilderness for anywhere from 2 days up to 2 months at a time back when we were driving more. Those were good and relaxing times, enjoying the simplicity of camping and living in a tent.

      Who knows, we may go AWOL again sometime. Good luck on your plans.

      Delete
  3. Yikes. Luckily it's more affordable here. My little (750sqft) home is less than 30% of my take home (that's including taxes, mortgage and insurance). I could have gotten a bigger home if I moved farther out of the city, but I like where I am.

    ReplyDelete
    Replies
    1. You have made good choices, and have kept your desires in check. Looks like it is paying off!

      Delete
  4. My family and I live in a very expensive housing market- median home selling for 500,000 us$. So many families right now losing their homes and credit because they fell victim to the "american dream" propaganda about needing to be home owners. It is more than okay to rent and wait for a sensible time to buy.

    ReplyDelete
    Replies
    1. In our ownership-oriented society we have demonized renting and renters. Linda and I are life long renters, and it fits our lifestyle.

      We have no debt, and like being able to move with ease whenever we want since we are a bit nomadic.

      You are right - it IS ok to rent, and perhaps more people should have considered this option rather than get in over their heads and lose everything.

      Delete
  5. In some areas a sensible time to purchase your own home will never come. It may make more financial sense to simply rent & not have to be responsible for taxes & maintance. However, this can also be fraught with dangers because you can be evicted, have huge rent increases, lack of maintance,etc.

    For some people they find the balance by renting near where they work & purchase land in an area they can afford. Pay for the land & then build as they can afford to so when they retire they have a paid for home. In the meantime they use the home for vacations.

    Renting would be a good alternative if there were very firm rules for the rental market & rent controls. People may also hve to lower their expectations of their first home. It might just have to be a bulldozer special or a smaller home Young people may have to decide to start saving for a home earlier, when they still are single.

    ReplyDelete
    Replies
    1. If we hadn't been blinded by real estate propaganda perhaps renting would be more popular. Luckily, here in British Columbia there ARE rent controls, and landlords can't raise rents more than 4% per year. However, how many people's wages are going up 4% per year? It is still too expensive for many.

      I like your renting AND buying solution. Linda and I would like to have a bit of property out in the middle of nowhere. We want a big garden, and no restrictive bylaws that would prevent us from living in a tent on our own land if that is what we want.

      However, it is more likely (as you pointed out) that a good time to buy land will never come for us... unless we move to a less expensive location which could be thousands of kilometers away.

      Delete
  6. That´s no so diferente from Brazil... Here we are slowly building a huge bubble! Renting has gotten really expesnsive too! The houses are now almost double the price they were 5 or 6 years ago. This is happening all over the country! Sure, Brazil is now more developed and people have more money on their pockets, but the prices are raising faster than our incomes and my generation can´t live in the same neighborhoods our parentes do. I chose not to buy for now. I´m renting a house. Will only buy if the situation changes.

    Please excuse my really rusty english!

    ReplyDelete
    Replies
    1. Marina, your rusty english is WAY better than my rusty Portuguese. Thank you for working through it to inform us about Brazil's housing bubble.

      Here it has been the same - real estate has ballooned out of reach of most Canadians. In a bubble most people suffer while the few reap the benefits and move on.

      Some Canadians feel like they are being priced right out of their own country, and think that they will have to move to a less expensive country in order to retire. I guess they won't be going to Brazil.

      Delete
    2. Gregg, i guess not! Brazil is NOT cheap AT ALL! Living in Rio or São Paulo is as expensive as living in NY (been there, done that). People come to Brazil because the country is developing and there are a lot of great working opportunities but is really expensive to buy or rent in the big cities.

      Delete

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