Josh sells real estate in urban Toronto. “Fourteen years now,” he says, “since I was 21. And in all that time, there’s been only one really crappy time – six years ago now.” …
Josh’s clients are mostly people his age – the sub-40 set. The average deal is around $800,000, he says, “but one in four, I’d say, range from one-two to one-four.” Of those spending more than a million, Josh figures the average mortgage is about 80% – taking into consideration CMHC insurance is no longer available for seven-figure deals.
“Used to be that a million-dollar mortgage was a big deal,” he adds. “Now I see them all the time.”
By the way, to carry $1,000,000 today with a variable-rate mortgage at just under prime is about $4,500 a month. With insurance and property tax, it’s a little over $5,000. The land transfer tax in Toronto on a $1.2 million so-so house needing serious renos in the north end is $40,200. So to close on that with 20% down would require cash of about $290,000, and then a million in financing. …
No wonder RBC came out with that report last week. The bank found people between 35 and 44 have far more debt than their parents did at the same age – and more leverage than any other group in society. Mortgage rates today may be 3% instead of the 14% they were in 1993, but the amount of debt has ballooned so dramatically that monthly payments eat up far more of disposable income.
As a result, people in this age group are more dependent on real estate than any in the past. Almost 100% of the increase in net worth for Josh’s cohort has come from housing appreciation, since they’re saving and investing virtually nothing outside of their walls.
While real estate augments, they win. When it declines, they’re screwed. …
[And] it’s worth understanding what happens to people like Josh’s clients once they have seen a disaster. In the US these days the appetite for house-buying is sinking with regularity among the young. A decade ago 40% of all purchasers in the States were first-timers. Today is it 27%. In Canada the number exceeds 50%, and is rising.
So either the American kids are wusses and might suffer, or the kids here are naïve and could implode.
– from Generations, by Garth Turner, greaterfool.ca, 10 Aug 2014
Our bubble is national, and will end as all bubbles do, with implosion.
Vancouver has the biggest bubble and the least non-RE support; it will suffer the most.
As one recent online article succinctly stated: “You can’t taper a Ponzi scheme”.