Affordability How Much is Too Much
Posted by torontorealty on October 13, 2008
In Canada with various programs such as Zero and Five percent down mortgages along with historically low interest rates housing was made more affordable across the country during the roaring nineties and early part of the Millennium than anytime since the early 1960’s.
The economy as a whole benefited with full employment in the construction industry, Low interest rates Mortgage business was booming and home-owner’s flush with cash from equity loans were spending. Our economy was truly riding on the real estate market with house price increases depending on where you resided 8-15% year over year the only downside was the loss of farmland or was it.
So great was this boom ordinary people made substantial income by buying and selling there home. These homeowners sort of speak the better term Investors would simply move in leave there possessions packed in boxes in the garage and sell after 1yr by this time the home had appreciated and of course it did, great wasnt it. This process would be repeated time and time again for hundreds possibly thousands of people across the country.
Wow what a story and like all good stories they come to an end. Some think this is the end of the Boom well they are wrong the end began some two years ago and this is really the beginning of a correction where prices will become more affordable to what the average person can handle.
There is one part of the story no-one mentions and that is during all the run-up in prices while everyone was enjoying the increase in there real estate holdings the average wage did not keep pace with the wild increase in real estate values. The end result is average home prices are now way out of wack compared to what people can afford instead of the 30% you may have paid for your housing costs at the start of the boom that percentage is now more like 70% .
With affordability now at its lowest levels in a decade there was bound to be a correction. In Canada like all western countries we have enjoyed this boom with multiple credit cards, equity loans, leased vehicles 2nd mortgages the party has been great hasnt it.
Now its time to pay up, throw some water on your face. Our problems will not be subprime unlike the United States our financial sector Bank’s and Insurance companies alike are sound due to Government regulation. There is one looming problem though and its interest rates if interest rates go up and your mortgage comes due this could be your subprime as you may be put in the awkward position of default.
My advice to you If your mortgage is coming due get in a couple of years get rid of the credit cards downsize to one lease and pay down that bad consumer debt. This could mean the difference between keeping your house and default.
Affordability how much is to much……
Source… Rob Paterson
