Jul
22

Why You Should STOP Reading The Newspaper Immediately If You Want To Buy A House.

This sort of thing makes me REALLY REALLY mad. Today morning I woke up and glanced over the Report on Business by the Globe and Mail. Not surprisingly, my arch-nemesis (just kidding, sort of) Rob Carrick writes another article about how hard it is for an average person to save a down payment in Toronto. He touts his new “down payment savings calculator” (which I won’t even link to because it’s rubbish) and shows everyone how the average person who makes $45,000 per year will take SIX YEARS to save for an average house in Toronto.

Why does this make me so mad?

Simple.

Rob forgets to tell his readers that he failed at basic mortgage math 101. Here’s why.

On average the property price in Toronto is $623,000. Note I said property, not house. Property means house, condo, townhouse, etc., so to get a key to your own dwelling of any kind you need to find $623K. Hard to do, so let’s save.

A $623K house means your minimum down payment is $46 645 including closing costs. At $500 savings per month (Rob uses .08% savings rate, I’m going to use 0.00) it will take you 7.7 years to save for an average house in Toronto.

So, what’s the problem? That’s pretty awful, right?

Yes. It is. However what the article fails to mention is that someone who makes $45,000 per year can’t qualify for a house that expensive. No! The maximum they could is $225,000. Using $225,000 as our house price, we need $14 625 down payment and closing costs, which means we need not 7.7 years but 2.43 years. A little more feasible wouldn’t you agree?

Hopefully the users of the calculator are able to figure out first what house they can afford, then to see how much down payment they need. If not, they are simply buying the mass hysteria brought to you by the newspaper and getting more discouraged and instead of having a plan, they forget it and spend money elsewhere.

I’m not advocating that everyone can and should own, that everyone can and should be able to save for it, and that our market is within reach for everyone. I know how hard it is, I see it daily and I’m very proud of my buyers who have scratched and clawed their way into home ownership. I believe the press needs to do a better job though of not just pointing out the difficulty in buying a house but also explaining it with real-world numbers and not hypotheticals that don’t make sense.

Argh! This makes me so mad.

Posted in: News