Book and Weblog – Authored by Garth Turner — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate: "Consistently people underestimate the cost of ownership, because they’re blinded by trumped-up gains in house prices in a narrow slice of markets, and baffled by realtor BS. For example, RBC routinely spells out the shocking truth. Its ‘housing affordability index’ measures the amount of pre-tax household income needed to service the costs of owning a house that you bought with a (for most people) massive 25% downpayment.
Nationally that number is 42.7%, which works out to 58% of the take-home pay for the average family. That leaves 42% for food, cars, transit, clothes, kids, saving and investing. But look at the numbers in Canada’s two bubble markets: in Toronto it’s 57% of pre-tax income (73% of actual cash flow) while in Vancouver it’s 82.4% (which, astonishingly, is 97.3% of take-home pay).
It gets worse. Even once people get houses, they can’t stop dicking around with them. Inflating them. HGTVing them. Throwing their remaining cash flow at them. Borrowing to aggrandize them. Using cash that could be earning money and elevating their income, and piling it into the same asset. In other words, penalizing themselves.
Here’s some proof. The average homeowner (and remember, this includes 70% of Canadians, and virtually all of the downtrodden middle class) plans on spending $17,142 this year on home renovations. The top three expenditures are on painting, laying flooring and upgrading appliances. In contrast, the average RRSP contribution – despite the fact eight in ten people have no defined benefit pension planes – was just under $3,600. The average TFSA contribution, which allows people to invest for tax-free growth now and untaxed increases in income, is $4,800."
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Nationally that number is 42.7%, which works out to 58% of the take-home pay for the average family. That leaves 42% for food, cars, transit, clothes, kids, saving and investing. But look at the numbers in Canada’s two bubble markets: in Toronto it’s 57% of pre-tax income (73% of actual cash flow) while in Vancouver it’s 82.4% (which, astonishingly, is 97.3% of take-home pay).
It gets worse. Even once people get houses, they can’t stop dicking around with them. Inflating them. HGTVing them. Throwing their remaining cash flow at them. Borrowing to aggrandize them. Using cash that could be earning money and elevating their income, and piling it into the same asset. In other words, penalizing themselves.
Here’s some proof. The average homeowner (and remember, this includes 70% of Canadians, and virtually all of the downtrodden middle class) plans on spending $17,142 this year on home renovations. The top three expenditures are on painting, laying flooring and upgrading appliances. In contrast, the average RRSP contribution – despite the fact eight in ten people have no defined benefit pension planes – was just under $3,600. The average TFSA contribution, which allows people to invest for tax-free growth now and untaxed increases in income, is $4,800."
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