The Good Old Days, when homes were cheap, or were they?

15-07-19-interestRates_b.jpg

Ahhh, the good old days.

Or were they, economically speaking? Let's take the early 1980's as an example.

We bought a home in early 1981 near the bottom of the housing crash caused by PE Trudeau's NEP (National Energy Policy), which dropped that home's value by about 20% from $111,000 to the $91,000 that we paid.

Oh, and we sold that home 5 years later in 1986 for a $4,500 loss at $86,500. Our thinking was that we were at the bottom and it was time to buy a more expensive home as it would appreciate more as the economy improved. That turned out very well, but that's another story…

My income as a 27 year-old in a middle management job then was $42,000. Interest rate was around 18%, but our provincial government bought the rate down to 12%.

At 10% down the mortgage was $83,640 with a monthly payment of $863. In 1981.

That same house is now easily $450,000. So at the same 10% down the mortgage would be $414,720 and at an easily obtainable fixed rate of 2.69% the monthly payment would be $1,897. Income for same job now would be about $120,000.

So income is up nearly 300%.
Home price is up nearly 500%.
Down-payment is up from 2.2% to 3.8% of annual income.
Mortgage payment is DOWN from 25% to 19% of monthly income.

So the down payment is a tougher burden, but the monthly cost of the mortgage is way-way down. Hence we live in bigger fancier homes and/or drive nicer cars, have 3 TVs, take more vacations, etc, etc.

Ahhh, the good new days.

Disclosure: Garth Chapman is a licensed Mortgage Advisor with Jencor Mortgage Corporation in Calgary Alberta. Garth is not a Financial Planner. Roadmap should not be considered as a substitute for what a licensed Financial Planner provides. The information contained in this website should not be construed as personalized investment, financial planning, or tax advice.

Copyright © 2017 - . Roadmap Strategies. All rights reserved. 
Powered & Managed by TANSI.