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.”
finally, some honesty from the renter camp. Thought prices were too high and chose not be buy in 2001 – have been tracking the market up ever since. This is pretty representative of the posters on this site, except the location is Vancouver, and the hope of owning a house is less than slim
Rusty, didn’t you pay attention to the question for newbies last week?
Nobody here is disagreeing that buying in Vancouver was a great decision 20 years ago. But what about the next 20 years?
http://vreaa.wordpress.com/2011/07/24/ive-been-a-renter-and-an-owner-without-doubt-from-a-financial-and-quality-of-life-point-of-view-ownership-is-the-correct-choice-for-most-people-in-the-long-term/
this is a 20 year mistake you ought to never make. Besides, there is not a shred of a chance this will end so long as Canada maintains an aggressive immigration policy. Here’s the recipe: gradually add 100K people to Vancouver, bake 15 years, sprinkle with development policy that reduces the # of detached dwellings…serve up a housing cost that doubles each 8-10 years.
Go ahead and keep renting for the next 20 years. That’s a recipe that serves up a very sour tasting housing position.
The problem with his scenario is the “retire by 55″ statement. The bottom line is this guy is going to have to work until 60 or 65 and save like scrooge
Yup, if you never “owned” a house, your life was a waste. You should do anything to “own”. Don’t be afraid, take on some debt – half a million minimum – and your life will have meaning. /sarcasm
Jake in Victoria is brainwashed and has an entitlement problem. Common issue with government workers.
When people talk about retiring at 55, what do think they’re going to do? Anything interesting, like travelling, costs even more money that you’ll have to save. I know someone who took at buyout around that age, and her life is modest because she needs to live on her modest pension. She’s thought about a new career, but that’s easier said than done as you approach 60.
Retire at 55, and you could have another 30 years of living to pay for with a limited income.
Even if he doesn’t use his investments for a downpayment, he’s in trouble. $95k to supplement a pension for 30 for 40 years? Kids in the house for at least seven more years?
Not only won’t this guy not have a 4 bedroom house, but he better adjust his expectations way downward and turn into a miser. Also, he should work for ten more years.