A home for sale on Fallingbrook Road in Toronto’s Beach neighbourhood on Aug., 29. Home ownership can be a key element in retirement planning but affordability appears to be at an all-time low.Fred Lum/The Globe and Mail
Owning a house is a key element in retirement planning but affordability appears to be at an all-time low. The chart shows there is some truth to this perception. When measured in constant 2021 dollars (right-hand scale), mortgage payments have been higher in the past two years than at any time in the past half century. On the other hand, if we express mortgage payments as a percentage of median household income (for economic families), we find that paying off the mortgage was more difficult in the early 1980s than it is now.
House prices have risen so much and remained so high for two reasons. First, median household income (including government transfers) is 50 per cent higher today in real terms than it was in 1976. We are therefore paying more for housing because we can afford to pay more. Second, a once in a lifetime wealth transfer is under way as aging baby boomers extend financial assistance to their adult children who are buying their first house.
House carrying cost over time,
from two perspectives
MONTHLY MORTGAGE PAYMENTS
In constant 2021 dollars
$4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1980
1990
2000
2010
2020
MORTGAGE PAYMENTS
As a percentage of median household income
60%
50
40
30
20
10
0
1980
1990
2000
2010
2020
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA FOR MEDIAN HOUSEHOLD INCOME AND PRICE INFLATION, THE FEDERAL RESERVE BANK OF DALLAS FOR CANADIAN HOUSE PRICES, AND CANADA 3-5 YEAR BOND YIELDS (PLUS 1.5%) TO APPROXIMATE HISTORICAL MORTGAGE RATES.
House carrying cost over time,
from two perspectives
MONTHLY MORTGAGE
PAYMENTS
MORTGAGE PAYMENTS
As a percentage of median
household income
In constant 2021 dollars
$4,000
60%
3,500
50
3,000
40
2,500
2,000
30
1,500
20
1,000
10
500
0
0
‘80
‘90
‘00
‘10
‘20
‘80
‘90
‘00
‘10
‘20
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA FOR MEDIAN HOUSEHOLD INCOME AND PRICE INFLATION, THE FEDERAL RESERVE BANK OF DALLAS FOR CANADIAN HOUSE PRICES, AND CANADA 3-5 YEAR BOND YIELDS (PLUS 1.5%) TO APPROXIMATE HISTORICAL MORTGAGE RATES.
House carrying cost over time, from two perspectives
MONTHLY MORTGAGE PAYMENTS
MORTGAGE PAYMENTS
In constant 2021 dollars
As a percentage of median household income
$4,000
60%
3,500
50
3,000
40
2,500
2,000
30
1,500
20
1,000
10
500
0
0
1980
1990
2000
2010
2020
1980
1990
2000
2010
2020
THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA FOR MEDIAN HOUSEHOLD INCOME AND PRICE INFLATION, THE FEDERAL RESERVE BANK OF DALLAS FOR CANADIAN HOUSE PRICES, AND CANADA 3-5 YEAR BOND YIELDS (PLUS 1.5%) TO APPROXIMATE HISTORICAL MORTGAGE RATES.
Median household income rose as fast as it did partly because female participation in the work force increased in the late 20th century; it now appears to have plateaued. As for wealth transfers, struggling millennials are unlikely to be as well-positioned as today’s boomers to help out their own children 30 years from now. For these reasons, future increases in house prices are expected to be more moderate than the recent trend.
Frederick Vettese is former chief actuary of Morneau Shepell and author of Retirement Income for Life.
