Friday Mortgage Roundup: December 21, 2012

This week's mortgage news lowdownRenting vs. buying, an aging demographic and all other items covered in this week’s post mean nothing if you’re on the final page of your Mayan calendar.  Hopefully we’ll all live to see another Friday Round Up; and so in the faith of tomorrow and our continued existence, we can all add the Mayan calendar myth to our repertoire of stories.

“When I Was Your Age…”

The famous tale of walking to school without shoes, during snowstorms, up-hill both ways and all in a land where a gallon of gas was a quarter – those were the days!  Forty years ago times were different, and so was the Canadian demographic. Throughout the 70s and 80s, just under 20 per cent of Canadians were 45-64 years old.

Now, nearly 30 per cent of our population is within this age band – an impressive cohort who are revenue generators, savers, are highly credit worthy and have a handsome net worth. This is great, right?

Barking Up the Wrong Tree

It’s great until they all enter retirement.  In retirement, they quite obviously do not generate as much income, do not save as much and their consumption is driven through asset depreciation (i.e. downsizing from a three-bedroom family home to a two-bedroom bungalow).

The baby boomers are an aging demographic who will be increasingly difficult to support, especially given the fact that the number of those under the age of 20 are at generational lows.  Those of us who succeed the baby boomers are having a tough time picking up the slack and bridging the disproportionate age gap.

Generation X, Y and Z

The brewing housing bubble is being fed by many hands and now includes the aging Canadian population (gen X).  Moving forward, there will be an increase in the supply of houses for sale on the market and a decrease in prospective buyers. Gen Y and Z are a proportionately smaller army entering a market where house prices are generally inflated and approvals for mortgages aren’t being given out on every street corner.  As the market becomes saturated with houses for sale, prices have no choice but to adjust unless the job market in Canada is able to sustain the level of immigration required to support a fantasy housing market.

For Those That Look at Real Estate with Dollar Signs for Eyeballs

Perhaps it’s time to take a step back and realign expectations about the pervasive housing market.  Don’t get me wrong, real estate is a lucrative business for those who use it to diversify a portfolio.  But if you have stretched yourself thin by putting all of your eggs in one basket with a ‘buy and hold’ or ‘real estate always goes up’ logic in a time where the market is due for a correction, you may be kicking yourself.  Home ownership truly gives you stability but (dare I say) is it perhaps a better time to rent?

Rent or Buy: Some Things to Consider

First and foremost you should dive into your finances and see what is in the budget.  Unfortunately your future mortgage and current down payment aren’t the only costs to consider. There are land transfer taxes, legal fees, mortgage / life insurance, property insurance, home inspection costs, moving costs, service hook up costs, condo fees, possible realtor fees … Is your head spinning?  Check out our mortgage affordability calculator and sit this one out.

The Double-Dutch Game of Getting Into the Housing Market

So now you know what you can afford, but is it a good time to enter the market?  Check out the Price:Rent Ratio – don’t worry this one is easy.  All that you need are two comparables – one that is for sale and one that is for rent. I just jumped on and found a two-bed, two-bath for rent in Toronto for $1,800/mo. or to purchase the neighbouring apartment for $360,000. This P/R Ratio is 16.67 (using the annual rent amount) which means it is generally better to rent than buy.  The rule of thumb is anything between 1-15 signals it’s better to buy than rent, 15-20 typically better to rent than buy and 20+ much  better to rent.  Although this is simple math, there is a great calculator on The New York Times that you can play around with! Week in Review

With people shopping for Christmas presents over the last week (vs. houses and therefore mortgages) there has been little need to price super competitively.  That being said, little changes have been made to the Best Mortgage Rates.  The 3 year fixed rate increased a mere 1 basis point, while the 5 year variable rate hopped up 5 and rests at 2.60 per cent.

Related Topics

Mortgage News / Mortgages

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