Developer ‘Affordability’ Spreadsheet – “To think that they’re now encouraging secretaries and coffee baristas to take out loans for $175,000 blows my mind!”

A reader who borrowed 2.3 times annual income to buy in Kitchener, Ontario, in 2006, marvels at how locals here in BC are being tempted by developers to borrow 5.8 times income in 2010. As the banker in the anecdote earlier this week said, “the banks have leveraged up the Canadian citizenry to unsustainable levels.” -vreaa

This from Angela by e-mail to VREAA 20 July 2010 –

“In 2006 I bought a 2bedroom/1bathroom 800 sqft condo in Kitchener, Ontario.  My income was approximately $45,000 at the time.  My bank manager, who I had a good long-standing relationship with, approved me for $103,000 at 4.4%, fixed rate. [2.28 x income -ed.] She said, “Spend whatever you want on a place, but that’s the biggest mortgage we’re going to give you.”  And that mortgage was HUGE to me. The payments were about $350 every two weeks, plus condo fees of $190.

Now I have found something that adds to your argument that Vancouver prices are unaffordable and buyers are headed for a world of hurt. ‘Madison Crossing’ is a development planned in Langley. Here is an extract from an ‘affordability spreadsheet’ found at the developer’s website:

Note that an income of only $30,000 a year is required for a mortgage of $175,000. [5.83 x income -ed.] And that out of a $9,000 “down payment” you only end up with about $3,000 in equity, meaning that really that $9,000 is going towards closing costs and HST.  The scariest part is the calculations is based on a 2% variable rate.
They advertise in the Langley local newspaper each week.  I ripped out a copy to show to my grandkids in 40 years. To think that they’re now encouraging secretaries and coffee baristas to take out loans for $175,000 blows my mind!”

4 responses to “Developer ‘Affordability’ Spreadsheet – “To think that they’re now encouraging secretaries and coffee baristas to take out loans for $175,000 blows my mind!”

  1. I think you end up with negative equity if your downpayment is south of 15%. Afterall, HST is 12% and mortgage insurance is a couple of % and fees are another 1-2%.

    In theory the place is worth 178,700 – 12%, which is about 157K. Thats really all the developer gets for the sale, the rest goes to the government.

    Then again, a place is worth what people will pay for it. If someone is willing to pay 178K today, if the market stays exactly the same then someone would be willing to pay 178K in a couple of years, and all of that money (minus realtor fees and whatnot) would be going straight to the seller.

  2. There is also the same type of ad in the Abbotsford “real estate review” center 2 page spread… only $149,900 for a starter 1 brdm @ 694sq/ft… Do you earn $14/hr? Why are you renting … live at the “Latitude” … Blah Blah Blah…. 2.2% on 35 years …

    END GAME for these guys… (both buyers and developers)
    No Sub-prime in Canada>>???? believe what you want to believe.

  3. If the value is under $525K then you get a credit of the Federal component of the HST (5%) so you only pay 7% tax and in this case PTT might not even apply if its a 1st time home buyer since the value is so low.

    Not in anyway justifing this BS, just stating fact.

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