To dream the impossible dream: Home ownership

A more optimistic view of owning a home in Vancouver posted in the Vancouver Sun this morning:

It's no secret that Vancouver has the highest cost of housing in Canada, so the release this week of Royal Bank of Canada's affordability index only confirmed what we already know.

It concluded that ownership costs for a standard bungalow in Vancouver amount to 92.5 per cent of median household income, prompting chief economist Craig Wright to say that owning a home in Vancouver "is a dream that only the area's highest-earning households can contemplate."

Not to take issue with such a renowned economist, but the dream is still realizable for median-income earners if buyers are willing to make compromises.

Let's start with the RBC assumptions that form the basis of the affordability index. These include a 25-percent down payment, a mortgage with a 25-year amortization and a five-year fixed rate. The standard bungalow has a floor area of 1,200 square feet, the standard condo 900 square feet and the standard two-storey 1,500 square feet.

While these measures are necessary to create a universally applicable index, they tend to simplify the reality of Vancouver's real estate market. A cursory glance at property listings, for instance, indicates that although condos of 900 square feet represent an average of the inventory in the city, units of that size do not dominate the market. More often, what's on offer are condos ranging from 500 square feet (or less) to 800 square feet. The website Realtylink.org lists 442 apartment properties below the RBC average price of $410,800. And that's just on the west side. There are 336 more in east Vancouver.

Furthermore, there are options between a bungalow and a standard two-storey home. You can't buy a twostorey detached house in Vancouver for $660,000, but that's the asking price for a two-level, three bedroom townhouse on West 8th with mountain and city views and nearly 1,600 square feet of floor space, which is larger than the RBC standard twostorey.

That being said, RBC's average price of a standard two-storey house of $843,300 may understate the case because there is virtually nothing detached on the west side for under $1 million and it's slim pickings on the east side as well. Indeed, the Real Estate Board of Greater Vancouver says its benchmark price for all single detached homes in Metro Vancouver is $902,000. However, anyone prepared to commute can buy a lot of house nearby at prices far below those in the city. Detached homes can be had for just over $500,000 in Squamish, less than hour's drive from downtown Vancouver; and $360,000 in Mission, at the end of the West Coast Express line. There are also bargains - relatively speaking - in Tsawwassen, Coquitlam, Langley and Surrey and other Lower Mainland communities.

What's more, RBC's index requirements fail to take into account the flexibility buyers have in arranging their financing. About a third of Canadians opt for variable-rate mortgages, which were recently two percentage points below the current posted fiveyear fixed rate. At a variable rate of three per cent, a $100,000 mortgage works out to a monthly payment of $474, or $110 less than the five-year rate. Extend the amortization to 30 years, as many Canadian have chosen to do, and the variable rate monthly payment drops to $421, or $163 less than the five-year rate.

Lowering expectations - do you really need five-bedrooms on a halfacre lot backing onto a green belt 10 minutes from downtown? - and making financing choices that reduce the monthly payment can dramatically alter the calculation of affordability. A consensus of lenders agree that no more than 32 per cent of gross annual income should go to home carrying costs, namely principal, interest, property taxes and utilities. Based on RBC data, the qualifying income for a condo in Vancouver is $80,500, for a bungalow $157,800 and for a twostorey $163,100. The median household income in Vancouver is $67,550. These depressing numbers may be valuable for studying trends, making predictions and agitating for policy changes, but they are not useful as a buyer's guide to the market.

The variety of properties available at different price points and flexibility in financing, including variable rate mortgages and extended amortization, along with a bit of luck, can help fulfil the dream of home ownership for agile buyers willing to keep their options open - even in Vancouver's "unaffordable" market.

 

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