“I was a Vancouverite until 1986 — when I realized I could never make a decent career for myself there as an Engineer, so I de-camped to Toronto for many years. And this was before the real estate boom. It’s only gotten worse in terms of career possibilities and affordability since the eighties.
A very dear friend I left behind in Vancouver bought a house five years ago in Ladner. It was a huge stretch for him and his wife to pay $539k for a side split on a 50 foot lot. But they were kicked out of their rental home and needed a place to raise a family and keep their stuff (bikes, skis, etc.). For some reason my friend thought that he couldn’t possible rent (no room) and besides, he argued, the mortgage payments would be the same as rent. (Insurance, taxes, maintenance etc were overlooked in the zeal to justify.)
Fortunately, the CMHC made it easy: a 40 year amortization and no money down and voila: a home. The $2,900 mortgage payment would be eased by a renter in the illegal basement suite. A combined income of $120k would make things tight, but what can you do? (Move away, or rent, I said.)
Fast forward five years. Despite an old vehicle in the driveway that cannot be driven because raising a few hundred dollars for repairs was impossible right now, the place looked great, with new hardwood floors and kitchen cabinets (RRSP withdrawal). But, the mortgage is up for renewal and guess what, new terms are required. Like a minimum equity requirement (80%), and a new amortization (25 years). This requires another loan for $100k (Mom) plus a big bump in monthly payments. What’s a man to do? Just talk to your financial advisor and come away with a new line of credit from your insurance company. Now he can pay interest only! (At a floating rate.)
The next leg down in real estate prices will bring about a fresh loss of the borrowed $100k and maybe more. The inevitable rise in interest rates will push the monthly payment beyond reach. Bankruptcy or family bailout has to be the final outcome.
And really, this sad state of affairs is due to a nesting desire and a bad case of rationalization. Curses, Vancouver, for ruining my best friend’s hopes for retirement and wrecking his balance sheet. I have to ask, is it really worth all this to live in Rain City?”
- ‘armourb’, via e-mail to VREAA, 18 Aug 2011
Pre-emptive comment: “Yes, they are, indeed, speculating. They are betting very heavily that RE prices will remain robust. They will be completely destroyed by any significant price drops. If they fully understood the reasonable risk of just 15%, 20%, 25% price pullbacks, they would consider selling. They are ‘speculative holders’.”