The housing market has entered a period of stability - those who think the market will fall and those who think everything's fine have neutralized each other.
And so we have a resale home market that is headed more or less sideways in terms of sales activity and showing only mild price increases. At least, that's with the crazy Vancouver market set aside.
You'll find no predictions here about whether or not a serious correction is ahead for housing prices. But I do have a question. Why are so many people still rushing to buy homes in an environment where the average price across the country is a little more than $371,000, with average prices in Vancouver at $786,311, Toronto at $456,147 and Calgary at $398,836?
Combine these high prices with the years of rising interest rates that lie ahead and you have a situation where affordability is declining and will continue to do so.
Some say there's a bubble in home prices. It's easier to make a case that we're in a home-buying bubble where people are purchasing homes at a rate that exceeds what could be considered sensible or rational.
Here are a few ways to tell whether a home purchase makes sense in today's market:
* The monthly cost of carrying your mortgage and other debts plus your monthly share of property taxes and heating is markedly lower than the maximum 40 per cent of gross monthly household income permitted by lenders.
* You have discussed with your lender how much your payments would be if interest rates rise either a little or a lot in the next several years, and you are comfortable with the results.
* You've got a good start on saving for retirement and can foresee being able to make at least modest contributions in your early years as a homeowner.
* If you have kids, you're able to regularly put money away in a registered education savings plan.
* You have a plan for finding the money to furnish your new home, take family trips and cover emergency expenses without going into debt.
Don't Listen to Agents
Do not base your thinking about your ability to afford a house strictly on what lenders or real estate agents tell you. They may have useful guidance, but their goal is to sell mortgages and houses. That's why the affordability measures they use pretend you live a world where there are no claims on your household cash flow other than those related to your home and other debts.
Being able to amass the minimum 5-per-cent down payment on a house does not mean you're ready to buy, either. In the real world of home ownership, 5 per cent is peanuts. By some estimates, the costs of buying a home - mover, property taxes and utility bill adjustments, legal fees and repeated trips to Canadian Tire or Rona could cost an additional 2 to 4 per cent of the value of your home.
Technically, being able to afford payments over a 30-year amortization gets you into the home-buying club. But a sensible, rational home purchase would be done with a 25-year amortization.
Let's say you're 30 and buying a home (people are doing everything later these days, which seems reasonable because they'll live longer). With a 30-year amortization, you'll be mortgage-free in a little less than 26 years if you pay on an accelerated biweekly schedule and don't make any lump-sum payments. That gives you just nine mortgage-free years before retirement to help your kids pay for college or university and top up your savings.
Now, about those lump-sum payments. Most mortgages give you some latitude to pay down your principal, but don't base your should-I-buy-a-house analysis on doing this. Life has a way of soaking up the extra money you imagine you'll use in the years ahead to make prepayments.
A final consideration in a rational analysis of whether to buy now is how long you'll stay in your home. The right answer: A long time. By moving out in, say, five years you could rack up moving costs that offset your gains in home equity.
Are you hung up on the idea that renting is bad and owning a home is good? The new rule is that renting makes a heck of a lot more sense than buying a house you can't really afford.