Cochrane's current housing situation may be a microcosmic example of what Canada as a whole may be headed toward in the coming years. According to the Bank of Canada's Financial System Review, housing prices, coupled with consumer debt, are the biggest risks to the Canadian economy.
Cochrane's current housing situation may be a microcosmic example of what Canada as a whole may be headed toward in the coming years.
According to the Bank of Canada's Financial System Review, housing prices, coupled with consumer debt, are the biggest risks to the Canadian economy.
With Canadians holding nearly $2 trillion in debt, Albertans hold an average of around $125,000 in debt per household ($50,000 higher than the national average). The fact that we lead the country in household debt is not a surprise when looking at the price we pay for that household.
The Financial Systems Review also indicated that Canadian house prices may be as high as 30 per cent overvalued, and have been at least 10 per cent overpriced since 2007.
The average cost of a single-family home in Cochrane is around $470,000; in Calgary, it's $479,000; Alberta's average is $400,000; and Canada as whole is $420,000. A recent statement from the Canadian Real Estate Association said homes in Vancouver and Toronto were ‘climbing out of reach.' The average price for a home in Vancouver is $820,000.
According to a Globe and Mail article, housing prices in Canada are 66 per cent higher than in the U.S.
Statistics Canada says the average individual income for Canadians is $48,250; in the U.S., it's around $42,500…that's about 13 per cent lower than in Canada, certainly not the 66 per cent we are seeing with housing prices.
In a nutshell, Canadians (particularly Albertans) are purchasing homes that are astronomically priced, but because most of us are not earning astronomical wages, many who have purchased a home in the last five years (enticed by low interest rates), are carrying debt loads that, according to the Bank of Canada, are ‘unsustainable.'
In Cochrane, homes are selling like hotcakes, much like they are in all of Alberta, which certainly is not a bad thing. But the amounts of money homeowners are forking over for their mortgages can be quite daunting.
For example, let's say you want to buy a home in Cochrane. You're a first-time homebuyer, so let's even say you don't end up purchasing a place for the average price and you end up getting a home for $400,000.
Let's also say you are able to save a 10 per cent down-payment (just a cool $40,000) leaving you with a mortgage for the remaining $360,000. Everyone's situation is different, so for argument's sake, our homebuyer gets his mortgage at a 10-year-fixed rate of 6.5 per cent and he/she wants to pay it off in 20 years.
Under this scenario, their monthly mortgage payment would be $2,666. And remember, that's just for the mortgage…not utility bills, property and education taxes, general maintenance and mortgage insurance for not putting down a minimum of 20 per cent.
So what does all of this mean for Canada, and why is Cochrane like a microcosm of what could happen in the coming years if the Bank of Canada is correct and Canadians' mounting debt is unsustainable?
Well, when people make investments, they are just that…investments. If those investments reduce in value they cease to be investments and people lose money.
There is of course the argument that first-time homebuyers shouldn't purchase a $400,000 home, and would be better opting for a more reasonable $300,000 starter home and work their way up.
This is true, but it would be true under any price point, and the lower that price point is, the more likely your average Canadian would be able to purchase a home.
In Cochrane, if they build it, a buyer will come. A house doesn't last long on the market, and when demand is high prices follow that upward trajectory.
Owning a home in Canada without being bogged down in debt has become a ‘dream' for far too many. If it is to once again be a ‘goal' that working Canadians strive for and achieve, something needs to be done about housing costs in this country, particularly in Alberta, B.C., and, yes, Cochrane.
Think of this: the average cost of a home in Canada in 1999 was $158,000.
On one end, it's wonderful that those who bought a home 15 years ago have cashed in on their investment, but will those looking to buy a home now be in a similar position in 2030?
If house prices do not come down and settle at a more reasonable level, that $2 trillion of debt will cause a lot more problems than the sound of a bunch of Generation Xers and a horde of Millennials complaining about why their dreams have to be so much different from that of their baby-boomer parents.
