- The average mortgage in Canada is a 5-year fixed rate mortgage. That means you lock in your interest rate (approx. 5%) for at most 5 years, then you need to re-mortgage. Interest rates can change drastically in 5 years.
- Vancouver currently has a house price to average annual income at 10x. That number is double the value of when the US peaked in 2005-6.
- Homeowners cannot walk away from their mortgages. I think it's called "personal guarantee" or something. IANAL, but bankruptcy doesn't necessarily clear out a person's mortgage debt.
So while the US housing market is terrible, you guys have some amazing perks for home owners. Just remember to never use more than 33% of your monthly income to carry your mortgage, and don't look to your house as a way to make money.
At the end of the day, a house is a consumable and not (necessarily) an investment.
* I'm not counting places like Detroit, where I've heard rumours of plots of land going for < $100.
Give it some time and the Canadian housing market will also correct itself. Same for Australia where the situation is very similar to Canada's (i.e., asset appreciation bubble largely driven by a commodities boom).
As in most things, the Americans are just ahead of the curve. And as a Canadian who lived in Southern California from 2006 to end of 2010, I think our friends there who were finally able to afford to buy a house after the housing bubble burst would dispute your conclusion that the US housing market is "terrible".
Just adding to this, the same thing goes for Norway...our home prices are far above the historical average when looking at average income and price growth. You'd typically pay somewhere around 8x anual salary to buy a home, and prices are still growing really quickly.
There isn't consensus that there is a bubble in the housing market, but some economists have produced detailed and convincing analyses that this is in fact the case. The price growth has been fueled by low interest rates, immigration and low construction rates due to bureucracy.
Vancouver is an odd case though. It is bordered by the US on one side, ocean on the other with mountains to the north creating a large triangle that limits build able area. It also is the warmest big city in Canada. These constraints help push the pricing up by restricting available supply.
What's happening to the housing market in the US is incredible, but in case anyone is interested in a foreign view, read on.
In the US:
- Most types of mortgages in the US are tax deductible.
- Interest rates are fixed for the entire term of the mortgage.
- Houses cost 2-5x average family income.*
- Some states allow homeowners to walk away from mortgages.
http://www.ritholtz.com/blog/2009/02/us-existing-house-price...
And yet with the housing market in the US is still in shambles. In Canada, we don't have the luxury of these three things.
In Canada:
- Canadian mortgages are not tax deductible. http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...
- The average mortgage in Canada is a 5-year fixed rate mortgage. That means you lock in your interest rate (approx. 5%) for at most 5 years, then you need to re-mortgage. Interest rates can change drastically in 5 years.
- Vancouver currently has a house price to average annual income at 10x. That number is double the value of when the US peaked in 2005-6.
- Homeowners cannot walk away from their mortgages. I think it's called "personal guarantee" or something. IANAL, but bankruptcy doesn't necessarily clear out a person's mortgage debt.
So while the US housing market is terrible, you guys have some amazing perks for home owners. Just remember to never use more than 33% of your monthly income to carry your mortgage, and don't look to your house as a way to make money.
At the end of the day, a house is a consumable and not (necessarily) an investment.
* I'm not counting places like Detroit, where I've heard rumours of plots of land going for < $100.