Will I ever be able to afford a house?
Tuesday, March 25, 200813 Comments
A report by the Royal Bank http://www.rbc.com/economics/market/pdf/house.pdf last week confirms that Canadians in most major cities are paying off mortgages which eat up much more of their monthly income than they can afford. The CMHC suggests that people can afford mortgage payments of no more than 32% of their household income.CMHC Mortgage Calculator http://www.cmhc-schl.gc.ca/en/co/buho/buho_005.cfm In Toronto the average mortgage eats up 42% of income while in Vancouver the figure is an impoverishing 72%, showing that things can get much worse.
Confronted with this dilemma, I ask myself, how is it that the average house could be worth an amount out of reach for many middle class Canadians? (Our parent’s generation could certainly afford to buy houses before their thirties.) To answer that, I considered the costs that actually go into each home. There’s the cost of the land the house is sitting on, the cost of bricks and plaster and windows and doors and finally, the cost of the labourers who stick it all together.
While all three costs fluctuate with the economy, it’s the cost of the land itself that is floating ever higher. This cost is based mostly on speculation, rather than what it’s really worth. So who can we blame for fuelling this speculation bubble? I believe the blame rests mostly on the shoulders of those who benefit from speculation without having to take on any of the risk. And it’s the real estate agents (who make higher commissions based on higher house prices) who benefit from higher prices. I don’t think they’re playing fair.
Open the weekend edition of any Toronto daily and you’ll find a “New Homes and Condos” section with hundreds of prices. And the prices the real estate agents are paying big bucks to show you are the ones most likely to strike fear in potential new buyers. That is, the fear that they’ll never be able to afford a house unless they buy something – anything – right now before the prices climb even higher. Motivated buyers mean wealthy real estate agents, making a morally questionable trade even more shady.
Look, for example, at the average wages for Alberta’s real estate agents in 2007. The ever upward trend of house prices in Calgary, Edmonton and Fort McMurray is reflected in a six-figure average income for those who sell homes. According to Royal LePage, http://www.royallepage.ca/CMSTemplates/AboutUs/Company/CompanyTemplate.aspx?id=1506 between the first quarter of 2006 and the first quarter of 2007, average prices for a detached bungalow were up 55.2% in Edmonton and 29.2% in Calgary. And in Edmonton, condo prices went up 72.1% in one year. Assuming real estate agents are charging the same percentage and getting the same amount of business, their wages would go up proportionally to higher house prices. According to Alberta’s Ministry of Employment, Immigration and Industry, the salary of real estate agents in Alberta did just that, as they took in an average of $130,100 in 2007.
http://www.alberta-learning.ab.ca/occinfo/Content/RequestAction.asp?aspAction=GetHTMLProfile&format=html&OCCPRO_ID=71001908 In provinces where house prices are less than those in Alberta, guess who’s making closer to forty grand? Recent statistics in New Brunswick suggest an annual income of $36,365 and in pre-boom Saskatchewan the average was a meagre $42,114. http://www.saskjobfutures.ca/profiles/profile.cfm?site=graphic&noc=6232&lang=en It’s hard to deny the pressing incentive for real estate agents to create artificially high real estate prices.
So how will I ever afford a house in a country where prices rise much faster than the wages? Perhaps I will consider a career change. Real estate is looking good.