The revival of the housing market is a sad moment in personal finance.
There are many scattered signs of a calmer, cooler attitude toward spending and debt as we head into the final leg of 2019. Growth in non-mortgage borrowing is slowing and the dreaded debt-to-income ratio has edged lower. Retail sales in the most recent tally were pretty much flat compared with last year and, earlier this week, Scotiabank Global Economics reported that year-to-date luxury car sales were down 8 per cent compared with last year.
Housing is where we draw the line on getting more sensible about spending. Sales in Toronto jumped 14 per cent on a year-over-year basis in October and the average price increased by 5.5 per cent. Vancouver prices remained below year-ago levels in October, but sales jumped 45 per cent.
The interests of owners, buyers and the broader economy are best served if housing prices trend higher on an average annual basis by the inflation rate, which most recently came in just below 2 per cent. At levels much higher than that, affordability suffers and buyers run the risk of owning homes they can’t properly afford.
Remember, housing affordability is not just about your ability to carry the cost of your mortgage payments and property taxes. There’s also home maintenance and improvement, daycare costs if you’re starting a family and commuting costs if you’re buying in the suburbs.
An affordable house is one that lets you cover all these costs while still saving for the future. Owning a house and building equity doesn’t earn you an automatic A+ grade in personal finance. You also need to save for emergencies, your children’s postsecondary education and, a top priority for most, retirement.
The official line on housing is that it’s rebounding from a slump connected to tougher mortgage lending rules, mainly a stress test to ensure buyers could afford their payments if mortgage rates surged.
For the economy, this rebound is positive news because real estate is an important driver of growth. People who already own a home are also winners – how long until every Toronto social gathering once again revolves around chatter about how much everyone’s house has risen in price?
If you’re trying to buy a house, the real estate reawakening is crushing. We’ve only just finished with a federal election campaign in which one of the big themes was the unaffordability of everyday life. Surveys about stress consistently show that money is one of the biggest worries people have right now. Somehow, people can’t make the connection between this stress and home ownership.
We do seem to understand that there’s a link between debt and stress, though. As reported in the always relevant Better Dwelling blog, growth in non-mortgage consumer debt was up 2.9 per cent in September over the same month last year. Wage growth has been in the 4 per cent range in recent months, which tells us that debt growth is running below potential. That’s a positive development.
In many aspects of our lives, there’s a trend of cutting back. Retail sales in August were down 0.1 per cent on a year-over-year basis, while sales of new vehicles were down 3.8 per cent through the first 10 months of the year. Scotiabank’s global economics group acknowledges there was a recent uptick in luxury car sales, but in the past year or more the segment has suffered "a prolonged retrenchment.”
And then there’s the housing market, where growth in mortgage debt has been helped along by falling interest rates. Only in housing is the decline in rates considered a positive development without caveats.
Around the world, there’s concern about slowing economic growth and recession. The U.S. Federal Reserve cut interest rates last week to support the economy and the Bank of Canada is expected by some economists to follow in the months ahead. Central banks are playing defence, while Canadian home buyers go on the offence.
Rightly, Canadians have become more cautious in recent months about spending and taking on debt. Wrongly, they have made an exception for housing.
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