Your Household Income vs Mortgage Size

[Mitsu3000gt]

IMHO the smartest thing to do if buying a home with someone else is make sure you can afford it on only one of your incomes - if the wife goes on mat leave or if one of you loses their job, you don't want to have to sell your house. Same thing if interest rates go crazy, you do not want to be in a mortgage you can barely afford.

[Twin_Cam_Turbo]

I was originally offered close to double what I actually took for my mortgage. I couldn’t imagine how house poor I would have been with that mortgage.

[Misterman]

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Canadians are hugely overleveraged, in part because we keep relaxing the rules surrounding mortgages and propping up the RE segment. None of the above is surprising to me.

They have actually been tightening the rules on mortgage lending. The problem is they aren't tightening the right rules. People are still house broke, they're just house broke on a 400k instead of a 700k mortgage now. For some reason they refuse to lower the debt service ratio and actually start fixing the problem.

[msommers]

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I was originally offered close to double what I actually took for my mortgage. I couldn’t imagine how house poor I would have been with that mortgage.

Yeah it's pretty staggering that is allowed. What's worse, I think really naive (err foolish?) people think the bank has properly vetted them, and they actually can afford that mansion on the hill after all...

When I bought with the salary I was making, I basically doubled the interest rate to see what the bill would be. If it didn't make sense, it was too expensive.

[Mitsu3000gt]

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I was originally offered close to double what I actually took for my mortgage. I couldn’t imagine how house poor I would have been with that mortgage.

We were offered over double as well. It was nuts. I guess it's technically possible if you don't want to have as much disposable income and are prepared to sell if interest rates go up, or if anything at all unplanned happens to your income. Having an $8-$10K/mo mortgage or whatever it would be is pretty crazy in my mind. It's easy to see how people get sucked into that though I guess, because a way nicer house than you can afford would be tempting to anyone especially with no immediate consequences - lots of people have no clue about finances.

[Buster]

Combine the bank's willingness to over-lend with peoples' belief that housing is a good long term asset class (it's not)...and poof.

[A790]

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housing is a good long term asset class (it's not)

Can you qualify that a bit? I agree with you but am curious to hear your reasons.

[Buster]

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Can you qualify that a bit? I agree with you but am curious to hear your reasons.

It just tracks inflation over the long term.

Plus all the other reasons about maintenance costs, liquidity issues, transaction costs etc.

[Mitsu3000gt]

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It just tracks inflation over the long term.

Plus all the other reasons about maintenance costs, liquidity issues, transaction costs etc.

In Calgary it also tracks O&G. That's why I don't invest in any O&G, because owning a property in Calgary you are already indirectly invested there.

[ercchry]

If you guys are talking about experiences that are more than 16 months old, it’s irrelevant information. OSFI changed it all last year and 4.6-4.7x is max, unless we’re talking alt lenders at 35% or more down (well, 20-35% they can do about 50% ratios vs the 39/44 A lenders can do), or private loans

[Little Dragon]

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It just tracks inflation over the long term.

Plus all the other reasons about maintenance costs, liquidity issues, transaction costs etc.

I've heard the leverage you gain on real estate is the reason most people find real estate viable, thoughts? I agree with your points.

[ercchry]

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I've heard the leverage you gain on real estate is the reason most people find real estate viable, thoughts? I agree with your points.

Cost of rent also increases, most people should not be trusted with their own money as well. This debate is as old as time and the numbers can be manipulated to fit the argument for rent vs own no matter your stance on it. The fact of the matter is RE is responsible for more self made wealthy people than anything else. One of the lowest barriers of entry out of any investment and easiest to secure funding for with lowest costs of borrowing

[A790]

The sword I die on is that the house you live in is not an investment. It costs you money. If anything, it's a glorified savings account.

CMV.

[JRSC00LUDE]

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The sword I die on is that the house you live in is not an investment. It costs you money. If anything, it's a glorified savings account.

CMV.

Most guys I know who have used real estate to get ahead are always maxing out the equity to put into something else, they're just paying themselves rent in the meantime.

[max_boost]

Real estate is where the ballers park their $$$

Being house poor? You're richer than you think.

[adam c]

People saying 100-115k average household income in Calgary which is one of the highestin the country, and leveraging 2.5-4 is crazy but how the hell does it get done in Vancouver or Toronto?

[max_boost]

Foreign money or real ballers. Like I said, ppl park their money in real estate, it's not where most make their first million unless you're a developer or just random joe blow who had 10 rentals and came across as real estate boom 2006 yyc or just old money passed down.

[adam c]

Sure but average joes in those areas, curious how mortgages and leverage works out there

[lasimmon]

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Canadians are hugely overleveraged, in part because we keep relaxing the rules surrounding mortgages and propping up the RE segment. None of the above is surprising to me.

Yep. But you have to admit the real reason why this is.

90% of retirements in this country are based on real estate always increasing in value (probably more).

Canada’s whole economy is built on real estate always appreciating.

[Misterman]

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It just tracks inflation over the long term.

Plus all the other reasons about maintenance costs, liquidity issues, transaction costs etc.

Then factor in what your downpayment could be making you in an investment and it's even more lopsided.

However there certainly are times when real estate is a great investment, but you're right it certainly shouldn't be considered a rule in society. I've had 2 homes that I purchased purely because the economy at the time dictated housing would go up, it was inevitable. Within 5 years both homes made me a small fortune and I cashed out.

I'd actually be curious to see some real world calculations though. I would think that what you pay on principal out paces maintenance costs for most homes. If that's the case and it breaks close to even with renting, then it's cheap piece of mind to know you can't get evicted or left high and dry if the landlord decides to sell the residence you rent. I've seen numerous people with dogs be really strapped to find a home because most landlords won't allow pets.