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June 11, 2019 | The Choices

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Yes, it’s Debt Week here at GreaterFool, making it tough to control the enthusiasm. But debt’s a big part of Canadian life now. We owe a ton. We save little. What could possibly go wrong?

Here’s another point of comparison with the US, the country most like ours. If you’re a moister thinking about snagging a condo, or have spawn facing the same decision, it’s useful to know if you’re borrowing just enough to become an owner, or so much that you turn into a slave.

First, the official limits. CHMC is the debt cop in Canada, and restricts debt service ratios to 35% for GDS and 42% for TDS. Huh? Whazzat mean?

The Gross Debt Service ratio (GDS) is the percentage of income needed to pay housing costs – the mortgage, property tax, heat and half the condo/strata fees. The Total Debt Service ratio (TDS) is the portion of income needed to pay the GDS stuff, plus credit cards and car payments (or other regular monthly obligations). So, for a young woman earning $70,000, the TDS would max out at about $3,000 a month. That would put the maximum mortgage payment at about $1,600, on a loan of just over $300,000. So with a 20% down payment, that equals a purchase price of $380,000.

But the average condo in Toronto goes for $642,891. In Van the price is $664,200.

You can see the problem. Prices are still too high. The market has only stated to adjust. And this is why more people are moving to Edmonton, Windsor, Ottawa, Montreal and Halifax.

In the States, where house lust is so 2005, young buyers have been getting more and more conservative. An overwhelming majority of first-timers between the ages of 22 and 38 are spending less than 30% on housing costs. In fact, the most recent number was 76% – that’s a huge increase from 65% who spent that little a decade ago.

Why are three-quarters of US moisters buying with such a low debt service ratio?

First, houses cost less. The median home value in Chicago (population 3 million) is US$230,000, for example. But it also seems American Millennials are acutely aware that real estate can be a wealth trap, having watched their parents get whacked by the meltdown more than a decade ago.

So the number of young buyers staying under the 30% income-to-housing bar has jumped from just over half back in 2006 (the boom) to the close-to-80% mark now. That’s remarkable, considering the growth in the economy and jobs over the intervening years of recovery. In fact the median ratio for Mills sits about 16%. Which makes you wonder what we’re doing to our own moister generation at 32% or 44%. Will they ever get out of hock?

Not if they stay in the GTA or the LM, apparently. Seems Canada is unique in the world for not only the biggest family debt, but also the priciest suburbs.

A study by shows there’s little escape from suffocating housing costs even when you flee the 416 or downtown Vancouver. By opting for a l-o-n-g and stressful, carbon-spewing commute, buyers can find accommodation for about 20% less than in the urban core. Big deal. That compares to a 55% break for heading to the burbs in NYC, or a 45% drop in prices in suburban London. In fact around the world people save an average of 41% by living in the outskirts of major cities – or twice the benefit gained here.


(a) You might as well live in the city, if that’s what you really want. Just don’t whine about no big backyard, or the lack of a two-acre Home Depot store, or
(b) Move. The suburban discount in Halifax is a huge 51%. In Ottawa it’s 43% and Calgary close to 40%.

Take Mississauga as an example. The average detached property cost is $925,600, vs $1.38 million in the city. The distance to downtown Toronto is about 27 km. The average commute time (by car) during rush hour is 40 minutes. That’s 80 minutes a day or almost most seven hours a week. (By public transit, the trip takes an hour each way from Square One to Union Station.) The question’s simple: what’s your time worth?

Life is all about choices. Make them carefully. Most fail.

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June 11th, 2019

Posted In: The Greater Fool

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