Charlottetown house prices pushing point of 'being inaccessible'
'If the worst case scenario comes out he will be 70 years old before his house is fully paid off'
The average Charlottetown home is still affordable to the average Charlottetown family, says a financial advisor, but won't be soon if prices keep rising as they have been.
House prices are up 38.5 per cent in the last three years, with the average home going for $277,000. That's a tight squeeze for the average household after-tax income of about $48,000, said Daniel Martens of Martens Financial.
"It's still feasible," said Martens.
"We're getting to a point of it being inaccessible and too costly for Islanders to afford homes. We're at six times income now to purchase a home and things don't look like they're slowing down with home prices. So that's a bit concerning."
With five per cent down and a 3.5 per cent interest rate, the average family buying the average home is looking at a monthly payment of $1,314, or 33 per cent of their after-tax income. That's right on the bubble of the recommended 30 to 35 per cent maximum spending on shelter, and it doesn't include insurance or home maintenance.
The long road to paying off the mortgage
Just three years ago, that family could be expecting to pay 25 per cent of their after-tax income on their mortgage. If prices and incomes continue to rise at the same rate, in three years that would be 41 per cent.
That's a concern for Martens. A 25-year-old client who comes to him with no down payment, he said, will need about three years to save up for one. But that assumes house prices don't go up, so add another year. You could apply for the province's house down payment program. It's an interest-free loan, which Martens said has helped some of his clients, but it is still debt that can add a couple of hundred dollars a month to your payments.
With a standard 25-year amortization, that house is paid off when the client is 54. That's not too bad. But consider as well, interest rates are at historic lows. They are unlikely to stay that low for the next three decades.
If in 10 years, when the mortgage is coming up for its second renewal, the rates have gone up two or three per cent, that will add significantly to the payments. In order to keep them down, the temptation will be to extend the amortization period.
"What that does is now instead of 29 years to purchase your home and buy it could be 35 years before you're able to do it, and you could even be encroaching onto 40," said Martens.
Soon enough Islanders aren't going to be able to afford to live in the province they grew up in.'— Daniel Martens
Now our 25-year-old is 65 before the house is paid for, and it gets worse if you start any later.
"I'll give you an example of a friend of mine. He's 30 years old he just purchased his first home. The numbers are very similar to what the averages are," said Martens.
"We've worked out a few different scenarios. But if the worst case scenario comes out he will be 70 years old before his house is fully paid off. That's scary."
CPP and OAS payments would not even cover the mortgage payments. Continuing to work past 65 would be an absolute necessity, Martens said.
Something has to give, said Martens. He doesn't like the look of the Island if house prices continue to go up as they have been.
"We need mechanisms to help fight it because soon enough Islanders aren't going to be able to afford to live in the province they grew up in, and that's not something that I would like to see," he said.
Increasing housing inventory
In a statement to CBC News, the Department of Social Development and Housing said it is focused on increasing the supply of affordable housing not just in Charlottetown, but across the province.
This housing is aimed more at low-income households, but the department said that the rate of construction of new homes overall has increased.
"Although we are unable to control the market, our goal is to increase the housing inventory for those most vulnerable," the statement said.
Housing availability will be increased by these efforts, the province said.