Keeping young St. Albertans home just got tougher
| Posted: Saturday, Jun 23, 2012 06:00 am
Here’s two headlines that’ll make life even tougher for those trying to keep young working people living in St. Albert:
‘Flaherty cuts mortgage amortization period’
‘Housing most affordable in Edmonton’
The announcement by federal Finance Minister Jim Flaherty on Thursday that the maximum amortization period for mortgages would be reduced to 25 years from the current 30 is one more significant roadblock for younger people trying to buy a home.
It’s easy to see why the feds are making the change. Allowing people to purchase a home with five per cent down and amortized over 40 years was a way to get more people into homes they couldn’t previously afford.
However, it turns out they still couldn’t really afford to live in those houses. The 40-year mortgage contributed greatly to Canada’s individual household debt-to-income soaring to 152 per cent in the first quarter this year.
Now the Conservatives, who brought in the 40-year mortgage, have cut the time period back for the third time in the last four years, getting it back to the more normal 25 years.
Which isn’t good news for people looking to get into the market, especially in St. Albert where the average price of a single-family home in May, according to the Realtor Association of Edmonton, was $411,557. That compared to the average price in Edmonton of $388,762.
The shorter amortization period means higher monthly payments. And that’s a potential stumbling block for those younger people who could manage to save enough for the five per cent down payment.
Reducing the amortization period from 30 to 25 years means an additional $177 in monthly payments on a $350,000 mortgage. To a young couple living on a budget, that’s a big amount to add to their bill every month.
Yes that $177 will ultimately reduce the total amount of interest paid over the life of the mortgage, but at a time when a lot of young families are trying to get their lives established, it is a tough pill to swallow.
What happens to those people when that 40-year or 35-year mortgage comes up for renewal and it has to be amortized over 25 years?
Plus, to qualify for a mortgage, Canadians can now spend a maximum of 39 per cent of their gross income on home expenses and that includes property taxes and utilities. In St. Albert, taxes and utilities chew up a sizable chunk of that 39 per cent. On a 2,000-square-foot house – try to find one built in St. Albert in the last 20 years that isn’t at least that big – taxes and utilities will run about $470 a month.
So what’s the young working person to do? There’s no rental spaces in St. Albert and the houses are too big, too costly and the taxes too high. The only real choice is to leave.
So yes, Flaherty’s announcement should help stem the tide of Canada’s increasing personal debt level, but it will make it even more difficult for St. Albert to keep its young working people at home.