How bad is housing affordability? Even a crash won’t help much

I wrote in an op-ed last April that the housing boom is tearing apart the financial fabric of Canadian life. The median national resale price for a home was about $696,000 that month, compared to $816,720 in February 2022.

The 17 percent price increase in the last 10 months was on my mind this week as I watched what was happening in the bond market. The interest rate on the five-year bonds issued by the federal government to finance its operations has absolutely skyrocketed in recent days. Why you should care: Five-year bond yields have a big influence on mortgage rates.

Pressure is building in the financial system for higher mortgage rates, which will make homes less affordable. I am beginning to see economists speculating on whether the growth in house prices that we have grown accustomed to will slow or stop altogether. Perhaps prices could even fall.

Many frustrated first-time home buyers have been waiting for a price drop and they just might get it. But will it be a deal breaker for affordability?

Here’s a quote from my story from last April: “Young adults increasingly feel left out of home ownership in big cities, even when their parents can’t stop talking about how much money they’ve made as homeowners. An exodus of shoppers to smaller communities is driving up prices for local residents. People who can afford to buy are forced to make rushed and stressful decisions about the biggest financial transactions of their lives, and then take on debt loads that could limit their ability to save for retirement and generate the spending the economy needs to recover. of the pandemic. A whole new financial burden has been invented for parents: making sure their adult children enter the housing market.”

Prices would have to fall 15 percent to return to the world described above, which would be an extreme move for the Canadian market. However, affordability was already highlighted back then.

And then there is the impact of higher borrowing costs on affordability. Buying a house with lower prices and higher rates could save you a couple hundred dollars at best compared to buying in today’s high-priced, still-low-rate market.

It’s too early to tell for sure, but affordable housing in Canada may be permanently out of reach for many young people. Stay tuned for a column on what that could mean for the country.


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Rob’s Personal Finance Reading List

A ‘Say No’ list for people buying a vehicle

After negotiating a deal to buy a new vehicle, you should expect the dealer to offer you all sorts of extra accessories. Here is a list of things pass, including several different types of “protection”.

Canadians don’t like coupons

A look at why the use of coupons It hasn’t moved much in the past year, even as grocery prices soar.

What is your performance in life?

I’m always on the hunt for new ideas on retirement planning. Here is something that qualifies: the concept of back to life, or get the best possible life for the money you have. A twist on the concept of return on investment, or ROI, focused on money.

The Incredible Versatility of Scotch Tape

Besides wrapping presents, what good is duct tape? Here is an amazing long list of paths use duct tape, including cleaning your laptop keyboard and flower arrangements.


Questions and answers

Q: It’s a long story, but we are in a situation where we have no savings/registered education savings plan saved for our daughter’s college education. She won’t qualify for OSAP (Ontario Student Assistance Program), so what’s the best bet for funding given the unsavory options?

TO: could your daughter qualify for scholarship or scholarship? If not, consider a student line of credit from a bank Keep in mind that students must pay interest on a line of credit while in school, but principal repayment can wait until after graduation. Any other ideas for this family? Let me know at rcarrick@globeandmail.com.


Today’s financial tool

Will Power is an organization created to promote the idea of ​​leaving money to charity in your will. Here is a calculator they created to explore how much you could leave to your loved ones and to charity.


The Money Free Zone

I read every word of this Globe opinion piece about writing an obituary for a long-dead brother. Beautifully written.


tweet of the week

As bad as inflation is, real financial killer in 2022 It’s going to be all those weddings and events that were pushed back the last two years that are going to happen this year.


What I’ve been writing about

More Rob Carrick coverage and money

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