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rob carrick

Buying a house can wreck your retirement.

Did your real estate agent or bank not tell you that? Of course not. All they worry about is whether you're making enough money to carry your debts. The question of whether there's enough money left over to save for retirement is of zero interest to them.

Actually, it's legitimate to question whether the people buying houses today can afford not just retirement, but other things as well. How about taking a decent trip now and again? ( Check out this recent entry in my daily blog on the "triple happiness whammy" you get from travel.) Or, what about putting money in a registered education savings plan for your children's post-secondary schooling?

As for retirement, we now know for certain that rising housing prices have had a negative impact on savings patterns. A recent study by RBC Economics says the aging population is mostly responsible for a pattern of declining registered retirement savings plan contributions in recent years. Basically, a growing number of people are moving out of the saving phase and starting to draw down on what they've put away. But rising housing prices were singled out by RBC as another factor in the decline in retirement saving.

Question: Are home buyers consciously choosing to direct money into house purchases instead of RRSPs, or do high housing costs leave little or no room for saving? RBC assistant chief economist Paul Ferley said the housing market has been hotter than the stock market in recent years, so that may be a factor influencing buyers. "The alternative is that housing prices are increasing so much that there's income constraint," he said. "People have to cut back on investments elsewhere, and it's RRSPs that are seeing the hit."

The fact that housing is even mentioned as an issue in declining RRSP contributions is a break from the usual pro-home ownership narrative in Canada. In fact, owning a home has become such an unquestioned virtue in our society that we're allowing it to dominate our finances beyond all reason. That's okay if all you want out of life is a house, but not if you aspire to more.

Like, say, the ability to retire on your own terms. Unless you're blessed with a reliable and generous pension plan, you'll need to save to make that happen in RRSPs or a tax-free savings account.

Unfortunately, we as a society can't even tell what's affordable any more. RBC reported Wednesday that housing affordability has actually improved lately, but if you dig into the numbers they show that it still takes 48.1 per cent of the median pretax household income to afford the mortgage, property taxes and utilities on a two-storey home at current prices. Most lenders won't even consider giving you a mortgage unless the cost of carrying all your debts eats up less than 40 per cent of your household income.

Sure, the overheated Vancouver and Toronto markets have skewed the national affordability numbers higher. But only Alberta, Manitoba and the Atlantic provinces are below the threshold where housing costs alone are less than 40 per cent of gross household income. It should also be noted that RBC's numbers are based on a 25-per-cent down payment, when most new buyers kick in just 5 per cent. The less you put down, the larger your financing costs.

Whatever level of affordability we have in housing is transitory anyway, sustained only by historically low interest rates. A house bought today with a five-year fixed rate mortgage will almost certainly be more expensive to carry on renewal. Unless you're getting solid raises at work every year, renewing your mortgage will further limit your savings capacity.

A huge disadvantage for people buying first homes is that all the advice providers they encounter – banks, real estate agents – have a vested interest in them buying. Where lenders do look at risk, it's strictly about the danger that borrowers won't repay what they owe.

What rookie buyers really need is an analysis of not only whether they can carry a house based on their household income, but whether they can also carry the other expenses of being a responsible adult. Like retirement saving, for example.

Business idea for independent financial planners: Provide a comprehensive "Can you afford to buy a house" analysis for first-time buyers at a flat rate of something like $250. The harsh (but illuminating) result for some clients would be that they can't afford a house without wrecking their retirement.

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