What It Now Takes To Afford These Vancouver Homes

Richmond house priced at $1,019,100: With a 5% down payment of $53,650.90 you need a minimum annual income of $200,000 to qualify for a high-ratio 25-year mortgage. Monthly payment: $4,871.31.

Vancouver east side house priced at: $862,200: With a 5% down payment of $43,110 you need a minimum annual income of $156,000 to qualify for a high-ratio 25-year mortgage. Monthly payment: $3,914.23.

Average-priced Metro condo: $460,671: With a 5% down payment of $23,033.55 you need a minimum annual income of $84,000 to qualify for a high-ratio 25-year mortgage. Monthly payment: $2,091.36.

– from ‘New mortgage rules: Can you afford these Metro Vancouver homes?’, Vancouver Sun, 22 Jun 2012

36 responses to “What It Now Takes To Afford These Vancouver Homes

  1. #Fail… Vancouver Sun unable to comprehend simple policy changes. The first Richmond house at $1,019,100 won’t qualify for a CMHC mortgage after July 9th… Any prospective buyer will have to come up with 200K for that beauty…

    • The thought is that banks will follow suit with their mainstream conventionals. So not quite fail, I’ll give them partscore.

    • You need to qualify at the higher rate of course, not the discounted rate as calculated above, not to mention DSR limitations impose additional constraints, so another tick mark in the #fail category.

  2. In any other city, an income north of $150k would get you a heck of a lot more house than that mildew trap in the middle.

    • Agree, this is my predominant feeling and thought when I look at these properties… surely someone earning ‘x’ would expect more than that?

  3. Renters Revenge

    Or rent, and put half the monthly mortgage nut into something other than residential real estate.

  4. Will CMHC still insure 5% down mortgages?

  5. Situationroom

    The real travesty is that prices ever went this high. A complete and utter disgrace to common sense.

    • Agreed. It looks bizarre to only a very small minority when it’s happening, and then to absolutely everybody after it collapses.
      And then the group lines up for the next spec mania!
      Aren’t we humans unbelievable?

  6. I just don’t get it. Who is buying these houses? Sales have declined tenfold but there are people still buying. If i was a buyer from china I’d expect a hell of a lot more than this for these prices. Canada’s real estate market is nuts! I am in the process of moving to Halifax and i paid 155,000$ for a dated 700 sqft 1br condo in a decent older building in a nice part of the city. My friends from Dallas were like what a piece of shit for 155k. Haha if they only knew what 155k would buy you in Vancouver!

    • Ordinary “working” Canadians are buying. People buy for lifestyle reasons and many have a lower adjusted cost base to do it without as much risk as those who don’t.

    • Many people (majority of population?) still have no idea as to the fact of the mania and what is now playing out.
      It’ll take great big headline price drops before everybody realizes that the market is weakening.
      There are probably buyers out there right now gleefully signing ‘deals’ of 10%-off peak.

      There will, of course, be buyers all the way down.

      • Van east guy

        Of course there will be buyers at all times. Some people just don’t care about their home values. They just want a home and knowing they could afford it as well. Some people will not rent because they feel it’s not a good plan if you have a family. Moving sucks without kids, with kids, it’s a pain in the butt.

    • Where have sales tanked 10 fold?

  7. Renters Revenge

    Speaking of affordable…
    The average home in America now sells for $272,000. A 20% down payment is about $55,000. Yet…
    “Housing May Not Be as Cheap.as It Looks”

  8. My family income would supposedly qualify us for that East Van home, but there is no way we could afford a $4,000/month mortgage payment. That’s not even factoring maintenance, taxes, and the initial extra $100,000 it would take to make that place livable. Even if you got $1,000/month rental income from a suite, where is the money for food, childcare, insurance, savings, and a bit of fun now and again? Not to mention an emergency such as someone losing a job or developing a long-term disability?

    Any way you look at it, the numbers don’t work. I am completely baffled and I just don’t see how people are doing this.

    • People have been overextending themselves in every way possible to buy; they have done that on the premise that prices will continue up.
      That has now changed, or soon will, and people will have almost no appetite to overextend. This is a crucial psychological factor that is not reflected in the numbers we’ve all seen analyzed these last few days.
      This is the process whereby the speculative spirits leave a market.

      • Renters Revenge

        Well said VREAA.

      • “I am completely baffled and I just don’t see how people are doing this”

        Even right in the sizzling Vancouver market, between 75 and 80 per cent of all purchasers buy either in cash or with substantial down payments that do not put them in the high-leverage category

      • formula1 -> As most of us know (and as you yourself have argued), the majority of those ‘cash’ or large downpayment purchases have been dependent on the buyer bringing equity from local RE sales.
        This process will be affected by the new rules; that’s why all price levels of the market are inter-related.

        The bubble was imploding anyway; these restrictions will speed the initial process somewhat. Destination pretty much the same either way.

      • Precisely. Most of those potential buyers who answer phone surveys stating they’d jump in at 10% or 15% off will have lost their nerve by that time. When the psychology changes, it changes overnight. Once a bearish sentiment takes hold, even the most careful, methodologically sound analysis that was done under the old pre-bear market conditions will have zero relevance.

      • 4SliceofCheese

        “between 75 and 80 per cent of all purchasers buy either in cash or with substantial down payments that do not put them in the high-leverage category”

        That means 20-25% are not. Large enough % to start a snowball.

        Wait that is too glass-half empty, I better jump in and start building that equity.

  9. The monthly mortgage for that average Vancouver condo is $2,091. When you add $250 for condo fees and $150 for property tax, it comes out to $2,491. The average rent for a Vancouver condo is currently $1,474, so you can rent that same condo for about $1,000/mo less.

    It’s going to be much less stressful watching the bust from a rental! You also aren’t on the hook for broken appliances or special assessments. The last two buildings I’ve lived in had special assessments of $20,000 and $130,000!

    • The average rent is $1474 a month? A $460k condo could fetch you a 2 bdr 800 sq/ft unit in east van. Rent for this unit is $1600-$1800. Even with a 30% dp, a condo investment will not even give you positive cash flow. So many people are gonna get screwed because they’ve made these decisions and could likely lose their principal homes.

      Im just looking forward to the next opportunity that will arise after the bust. Marijuana will be legalized and will be the centre of the next boom in BC. I don’t see any other choices we could make to fill the spots of, realtors, construction workers, and the whole RE industry related workers.

      • I think your rent figures might be a bit high – currently renting an 800 sq ft condo that’s assessed at $530,000 in Fairview (close to Cambie) that’s costing us $1650 and is ~5 years old

    • Correct. Oh, some of us will have to move out when our current landlords go under, or panic and sell the place, but even under those circumstances, most of us renting fools will be fine. Why would the new landlord want to kick out an existing tenant who pays his rent each month? Such tenants will be a precious commodity if the economy sours significantly.

  10. I’m sure not many people are putting 5% down on 1 mil homes. They wouldn’t be buying a 1 mil home if they couldn’t save for a decent down payment. The way these people are likely affording these homes are from the move up market effect. They likely owned properties before the massive run up and sold or using a Heloc. I know several people that have done this. They figure, do it now, or I’d you do it later, a sfh could be out of reach. For a new buyer, a million dollar home is likely their purchase. They’re new buyers for a reason.( young with little or no capital). These young people are buying up condos. Some (if they have extra $) will buy TH’s.

    So in conclusion, “we are not richer than we think”. Your home is not an ATM.

  11. So lets see then….an income of 84 grand with 5% down will allow you to buy a 6 or 7 hundred sq.ft condo valued at 460k. That seems more realistic when you consider that the price/income is roughly 5.5 although it is still high.

    Truth is that only a few people will qualify. The problem is that median after tax household income in Vancouver is just 67,550 and that is generally based on two working people. So we already know that more than half of all families still won’t come close to landing a mortgage with the new changes (even when the best they can do is buy a condo and get squeezed into sharing what is essentially a one bedroom apartment).

    Still shaking my head in amazement. This is really going to bring prices back to reality and it will eliminate the nettlesome move-up equity that was partly behind the local resale market. I mean, if you can’t capture enough of the equity created from the boom then you can’t justify selling and moving up anymore.

    So this might actually cause listings to decline as people settle back into the place they already have and quit hunting for other homes. It might also suggest that a thinner market for resales can have a more dramatic impact on the overall picture in the same way that a handful of homes drove prices up.

    Don’t know really. Just a thought.

    • Some may behave like that.
      But there will be another group who scramble to realize their paper gains (on which they have become dependent for their financial futures)… those guys will try to sell into a falling market…. so will the momentum specuvestors.
      We can’t be certain as to the relative size of these different groups of ‘players’… there’s the ‘rub’.

      • That might just be the small group that really swings prices too. Selling into a declining market on thinner volumes could make for a lot of drama as the speculators get busy salvaging what they can from a market that is unquestionably about to take a hard knock. Those are some of the guys who will really hurt prices quick as they rush for the exits.

        I agree it almost impossible to know in advance just how fast it will move though or how people will react so I always like to go back and see what happened in the States. The stage of denial is coming soon. Then reality slowly dawns.

  12. Agree with the sentiment here re: Why are people still buying? Nevermind those who have bought in the past year and are already offside – I know three different couples who have bought detached SFH in the past few WEEKS – two moving up following recent condo sales and one thanks to down payment from parents. Two out of three settled for junk simply to “make the numbers work.”. All are over-extended. Their excitement at being new home owners seems tempered by the stress of realizing what they’ve all just taken on, not to mention the timing, just prior to the new tightening rules which are sure to further soften prices.

    • It will be interesting hearing Realtors sing a different tune for a change. As thousands of potential buyers in the Vancouver area have now been effectively shut out of the market the agents must now convince sellers to drop prices and be more flexible with offers they receive. Fun and games are over kids. Time to get serious because the onus is on vendors to move on price now, not the buyers.

      No price drops, no sales.

      Especially in the million plus range. There never were enough buyers in that category to begin with. The new regs will eliminate most of the pool of wannabes (thank you, God)

      You know how its going to go though. Realtor’s aren’t stupid. If you waste their time with overinflated listings they won’t even bother showing up to meet you. They have better things to do.

      Like sell houses that are priced to move.

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