Garth Turner at greaterfool.ca 17 Jul 2011 relays this story from Jake in Victoria -
“I just turned 50. I married in 96 and then started thinking about purchasing a house. Should have bought something but had no cash, no down payment, and job wasn’t that good. But then things picked up. Starting saving, had 2 kids, moved to a small rental house.
But in 2001 prices started spiralling out of control, and even though my income and savings increased, I am still chasing the market up. I could rent a much better and bigger house than I could ever buy, so did just that. But I am running out of time.
So if I wait until 2013 or 2015 to buy in, and I could as I have now saved, I will be 54 by then and ready to retire. And every rent payment is going right out the door, I don’t even want to think how much I have spent on rent in the last 15 years, I could have bought 3 houses.
I work for Government, and my pension from BC Pension Corp starts at 55. I have 31,000 in an RESP, and 90,000 in RRSP money, of which 50,000 was destined for the HBP. 5,000 in a TFSA.
Am I screwed as far as owning a 4 BDR House in Victoria? Is it time to throw in the towel on my dream, rent til the kids are gone, and then buy a 76 Winnebago and live off the land?”
“I am not whining about my position in life, I thank God for what I have, I know I am in a better position than some that have shared their stories on the blog,” he said, “but this is my goal. A house by 55.”
GT added this sensible analysis: “Following up, I found his two kids are 11 and 13, his wife doesn’t work, the family income is seventy grand, he’s desperate to retire at 55 and his pension will be $2,800 a month gross. So here is the situation – devoid of emotion.
The average SFH in that city is $630,000. His down payment will max out at $80,000 (with the HBP and cashing in his TFSA plus the rest of his RSPs). That’s 12% down, which means (with closing costs) a mortgage of $562,600. Of course, he can’t risk going variable since rates have nowhere to go but up, so a 4% fiver amortized over 30 years would cost $2,734 a month, and then escalate. With property tax and insurance, that climbs to $3,134.
His pension income, after tax (at 20.6%), would be $2,416 a month. So, carrying the house would take 129% of his income. No food. No gas. No cable TV or new clothes. No car. And only $31,000 in RESPs to help his two kids through a collective eight years of university.
See what I mean? Home ownership’s a dream denied by his own financial reality.
The only hope might be to move to rural New Brunswick, buy a place for $139,000, shoulder a mortgage in retirement, and have zero savings. Or, Jake could rent for 50% of his after-tax pension income, still have money to live, plus $95,000 invested.
If financial security and quality of life are the goal, renting’s the only sane option. But I know from his conversation with me, that ain’t gonna happen.”