Rare breed: Home buyer balks at a $500,000 Debt does not rest lightly on his shoulders. That’s why a guy we’ll just call Frank is having a tough time in the current Toronto real estate market. He figures he’ll have to borrow upward of half a million dollars, and he’s freaking out. “It’s a death sentence,” said the 35-year-old husband and father of a young child. All three are living in a 700-square-foot downtown condo, and Frank says they need to move. “My wife wants more space, now, and she doesn’t really care how we get it.” Frank’s an engineer and his wife is an office administrator. They make good money, they’ve got no debt other than their condo mortgage and they’ve put together a down payment of $125,000. The bank says buying a $700,000 house is no problem for them, but Frank is squeamish about spending that much money. For the past three years, he’s been saving with a goal of spending $500,000 on a starter home. “The problem is that over the past two or three years, while we’ve been saving our down payment, the half-million-dollar starter home became a three-quarters-of-a-million-dollar starter home.” Canada needs more Franks – people who take a skeptical to paranoid view of debt. We’d have a more affordable housing market, lower household debt levels and less vulnerability to rising interest rates. We’d be both healthier as a country, and quite possibly wealthier. But you can’t easily opt out of taking on big debts. If everyone else in Toronto is willing to keep bidding house prices higher, then what’s a guy like Frank supposed to do if he wants a house for his family? Oddly, buying does make some sense for this high earner. Rona Birenbaum, a financial planner at Caring for Clients, did a quick analysis of his situation and found that a $550,000 mortgage plus various other basic housing costs would eat up about 25 per cent of his pretax household income. That’s well below the 32-per-cent threshold the banks use for affordability. Bottom line, Frank and his wife would be able to carry a mortgage, save a reasonable amount and spend money on other things.
Posted on: Fri, 13 Sep 2013 16:51:53 +0000
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