The Politically Correct Congratulations
I have taken an extensive look at how the price of housing and the low interest rates are creating debt slaves for life and my advice to anyone who would listen who is interested in entering the housing market has been to look for the top and wait 4 to 7 years.
Housing is the biggest single investment most will make and entering at a top can be financially crippling for life. In one of my posts I calculated my own entry into Vancouver's housing market near or at a top cost about an extra $65k over if I'd bought the same home about 5 years later, with about a 10% decline in price. That's a lot of lifestyle I feel like I missed out on.
So, my nieces and nephews talk about wanting their own home in Vancouver's market. My home that had been down 10% at one time ended up being sold about 13% up after 8 years of ownership. Take off the realtor fees, etc, and with 8 years of owning that home I was up about 9%, or $30k. Interesting, four years later, my old home was just sold this fall and it was sold for 88% more than we paid for it brand new, about $308/sq ft. So in 12 years it went from a market top of about $163/sq ft to a new probably market top of $308/sq ft. From that low in the middle it is up 110%.
As much as I feel "cheated" from buying at a market top, I also feel lucky in that we had a far better household income in being able to manage this challenge. We were able to reduce debt, and interest rates could have doubled and we'd have been able to manage because of our aggressive repayment of debt. We were lucky in that interest rates declined and we were able to increase the repayment of principal through keeping our payments the same, but refinancing to a lower rate and reducing the amount of interest and effectively increasing the aggressiveness of our repayments.
I suppose my nieces and nephews will have that same advantage of being better wage earns, indeed, my nephew has had his own business since he was 16 and I loved our conversations where he'd talk about what he looked for in an employee and how he decided between a minimum wage earner, $8/hour, and his top wage earner, $13/hour. He truly is one of the most amazing young men I know.
But, it doesn't take away from the fact that they have or are buying at a top or very near to a top, a far more crippling top than I bought at, one where our affordability index for the city was probably around 4 or 4.5, whereas a year ago it was at 7.7 and prices are up since then, our median sale price is now $540k. Checking the data on individual municipalities I see that prices are up about 15% since that affordibility survey was compiled. That median sale price is distorted by declining home quality, increasing 1 and 2 bedroom apartments versus less detached homes. My first home was a 3-bedroom townhouse and theirs is an apartment. Vancouver wages have been so incredibly flat and there is no question the buying power of households has declined to the point that many households can no longer figure out where to cut in their budgets.
By historical standards, interest rates are low. There will not be a refinance at a lower rate advantage and there is far more likely to be a refinance at a higher rate disadvantage.
If an affordability index of around 4.5 can result in price decreases of around 10%, what kind of decline can a 7.7 affordibility index result in?
So, one has bought and I hear the other is buying and it is normal and expected to congratulate someone on a home purchase, but I feel so little congratulations in my heart.