To buy or not to buy.

The financial facelift in today’s Globe and Mail focuses on a vancouver couple that would really like to buy a house, but are priced out of the market. Or are they?

“George and Colleen have a sympathetic banker. He has offered to finance the purchase of a house with the understanding that there would be no payments until George has finished his training. That’s very accommodating, but five years of compound interest would be a huge sum to pay, the planner adds.”

Their situation is looked at by a financial planner from Kelowna, Derek Moran who points out that they could stretch to buy a condo, but doesn’t recommend it right now:

“George and Colleen could downsize their plans. A condo for $400,000 would be an alternative to a house. Some banks will lend up to the full value of a home. Without any down payment, a mortgage at 5.3 per cent with a 25-year amortization would cost $2,395 a month, not including property purchase tax, GST and mortgage insurance costs. It would be paid off by the time George is 57 and Colleen 59.

Is it worthwhile to take on a $400,000 debt to buy accommodations similar to those they already rent for $1,200 a month? In spite of the advantages of ownership, it makes sense to continue renting, Mr. Moran insists. Buying would cost twice as much each month in mortgage charges as current rent and would expose the couple to the risk of a housing collapse as well as property tax increases and rising interest rates.”

It’s interesting that they bring up the possibility of a housing collapse, and even put some potential numbers on that situation:

“If George and Colleen find that real estate prices soften, they could save as much as $100,000 on a $400,000 condo. With the financing costs added in, that saving would actually be $296,368 by the time the mortgage is paid off.”

Isn’t it amazing how $100,000 becomes almost $300,000?

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chase
chase
14 years ago

I've had it with the vancouver market – It's absurd. I for one wont be a factor in this market for at least 5 years. I'm currently in Toronto looking at the job market and house prices and I've 95% made up my mind to move here. I can earn more and even though some people say prices are high here they're nothing like vancouver. You can get a decent centrally located house here for under $400k! Thats more like it! Goodbye rain, hello snow!

dingus
dingus
14 years ago

Really. Isn't the advice, "Just rent until George is a doctor. Five years in a rental won't kill you and will probably save you money. Maybe spend a few hundred bucks more and live above ground so it's more palatable. Once George is done, you'll be able to buy what you want anyway. Who cares. It's one of the downsides of being a student for a long long time. What else did you expect???"I always have a problem with peoples' expectations in that column. Somehow getting more realistic with expectations isn't an option as far as financial planners are concerned.

macchiato
macchiato
14 years ago

"George and Colleen" was a comical read. 67K per year, they are sensible YET desperate to get in on the booming real estate market, but isn't that an oxymoron.Aren't doctors notorious for bad financial moves .. and the beat goes on.

macchiato
macchiato
14 years ago

So who are buying up all those houses in Vancouver?I know a handful who bought half a dozen houses each as investment:- Out-of-town and foreign investors- Absentee new CanadiansIs this a joke? Or, you just happen to know some foreigners that think buying a 6 pack of houses here, now, is a good idea?

Anonymous
Anonymous
14 years ago

For those who missed Saturday local news on Sept 23, the archive is still available for the next 5 days on:http://tinyurl.com/zav5n- Click button for streaming video of newscast- Select SaturdayanonX

Anonymous
Anonymous
14 years ago

The drop has begun.Look at eric latta's listing at ericlatta.comHe has one at Strachan point, West van that he has dropped over $200K.And anotheron Rockridge taht he dropped…wait for it…drum roll….$531,000! Both are still well over-priced.To buy in this market when reductions are just starting is financially foolhardy.

Anonymous
Anonymous
14 years ago

"It's interesting that they bring up the possibility of a housing collapse, and even put some potential numbers on that situation"Tonight on CTV local news, it was mentioned that the RE market is cooling with sale of condos down 13% and houses down 25%. And Mandalay Richmond is still half unsold.Vancouver School Board is facing a $1.5M budget bombshell as 1200 kids didn't show up after the summer holidays. To overcome this funding shortfall, 70 teachers will have to move schools, teachers will be oncall, class size increasing. It appears that parents are moving out of Vancouver to Surrey, Langley, Abbotsford, Aldergrove… So who are buying up all those houses in Vancouver?I know a handful who bought half a dozen houses each as investment:- Out-of-town and foreign investors- Absentee new Canadians

stucco-slushy
stucco-slushy
14 years ago

George and Colleen have a sympathetic banker...actually I think they have a vulture for a banker.