Tuesday, November 30, 2010

The Spin is In on Canada's Latest Housing Numbers

Dream of home ownership gets easier in B.C., RBC report says

B.C. homebuyers have won a temporary reprieve from the sharp drop in affordability since the middle of 2009, according to a national report released Monday by RBC Economics Research.
Ha ha ha. Awesome. Ignore any questioning of the wisdom of buying an inflated asset that sucks up 50% of your pretax income for the next 30 years.

"It was a combination of a drop in interest rates and some softening of pricing that lowered monthly mortgage payments," RBC senior economist Robert Hogue said . . .
Holy Moly people. Did you learn absolutely nothing from watching California's market blow up? Using monthly payments as the sole metric for affordability was the key to the entire debacle from the buyers' side. That's why teaser mortgages worked so well, because people were using such an incredibly short-sighted measure when signing their economic lives away.

You need to look at opportunity cost. You need to stress test your personal finances ten years into the future for rate changes. Also project the total equivalent rent for all shelter options and then look at the totals. Then you need to estimate the risks. What are the odds that this market is going to continue to go up? You also need to look at how long you plan on living in each shelter option, then factor in some not unlikely unplanned events. What happens if you get divorced? Need to change jobs? How much of a loss are you willing to take if you are forced to sell without regard to market conditions?

If you really want to learn from California, when you are done with these other analyses, ask yourself: How are you going to feel facing a $1.1 million mortgage when the equivalent house down the street sells for $700,000. Ah the "Dream of Homeownership" . . . Dream, nightmare, same difference.

Added: The Australian decline from peak is also being sold as the greatest buying opportunity in the world. Crazy like a fox, I suppose. But still crazy.

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