It’s obviously difficult for someone in my position to report without bias. On one hand is the great clients I’ve worked with that have bought or sold. On the other are those wanting to buy or sell but unsure where the market is headed. Add the fact that I get paid to sell homes and the conflict of interest circle is complete. That’s why I enjoy just putting up the stats & charts mostly without commentary and let you interpret it as you will.
But sometimes reports or news articles come out that are biased or contain vital info that I feel needs to be brought to attention in order to be analyzed properly.
For example, RBC’s Affordability Index Report that was released this month. The report states that the Calgary market has been fully restored to affordable levels. But consider this:
- It’s actually based on a 25% downpayment, not too common among first time buyers.
- It’s calculated using household income, so if you’re an individual/sole provider the report doesn’t apply to you.
The last sentence of the report states:
Typically, no more than 32% of a borrower’s gross annual income should go to “mortgage expenses”— principal, interest, property taxes and heating costs (plus maintenance fees for condos).
So clearly, Calgary Single Family homes are still out of the acceptable affordability range according to RBC’s statement above and using the GDS ratio. And remember, that’s with a household income and 25% down – which means that you do not need to pay the any insurance premiums (ie. CMHC, Genworth)
Of course, you know some will jump on the report without digging a little deeper. A Calgary reporter writes:
Still not too late to buy a home, but you’ve missed the lowest prices…The bank says the three-month period marked the fifth straight quarter in which affordability improved at the national level — down to a point where it took just 39.1 per cent of pretax household income to pay the monthly mortgage, property taxes and utilities on a bungalow, or 44.4 per cent on a two-storey home.”
Just 39.1%. 44.4%. Remember, the Total Debt Service ratio (TDS) shouldn’t take up more than 40% of your gross income. If house expenditures are at or over the limit, it doesn’t leave any room for car loans, student loans, credit card bills, phone bills, etc. That’s the national picture, how about Calgary?
…just under 36% of income to cover P.I.T and utilities, or 36.5% if they’re in a two-storey home.
Not much better, and still over the recommended GDS ratio. However, if there is no other debt at least it’s under the allowed TDS ratio. Condos and townhomes however were well within the affordability range, using the above mentioned criteria.
But now the worm is turning. Builders are already announcing price hikes due in part to rising materials costs. There are also suggestions mortgage rates might begin to move up –nothing serious, but an increase, nonetheless.”
Contractor prices did indeed rise 0.5% from June to July (down 7% from last July) And it depends on what your definition of “nothing serious” is when it comes to interest rate hikes – both for those already with a mortgage or those looking to buy. (Especially since 59% of Canadians are living paycheque to paycheque as it is)
So is Calgary affordable? It depends on what measures are used to calculate the affordability level.
Just a note regarding New Home Prices, one builders sales rep in the SE told me they raised their prices a few thousand when they saw MLS SFH inventory drop below 3500, which she said resulted in increased traffic to their showhomes. Builders are very aware of MLS inventory levels.
Today, RE/MAX released their Brick & Mortar report 2009… I don’t even want to get started on that…yet 😉