In this episode, we will dive into something that I wanted to run numbers on for quite some time.
Was it actually more affordable to buy real estate in Vancouver with a 20% mortgage rate?
While growing up, I’ve lost count of the number of times I recall my parents bitching about how tough it was during this time, but was it really that bad?
I am Jessi Johnson, guiding you with over 18 years of experience as a mortgage broker and realtor.
Houses back in the 80’s were as cheap to purchase as the price of property transfer tax on some transactions today.
The data is scattered but from what I can see, the average Vancouver home in the mid-80’s was about $160,000, although some past data shows significantly lower numbers
Today, that number sits around $2,500,000, which is, 15 times higher.
Have income levels risen 15 times? Fuck no.
The average Vancouverite income in 1982 was about $30,000 but it was a little higher in Vancouver.
Today, the average Vancouver income is about $69,000. In 40 years, it has only doubled and change.
Not increased 15-times like the price of a house
Sure, average income levels in the 1980s were lower than today, but it’s crucial to consider the rate of income growth relative to home price growth and inflation.
While nominal incomes are higher today, the key factor is the income-to-house price ratio, which has deteriorated, making home ownership less affordable
Let’s run some numbers here:
$160,000 with a 20% down payment is a mortgage of $128,000.
At a 20% mortgage rate with a 25 year amortization, that costs $2,108 per month or $25,300 a year.
This equates to 74.4% of the average income, back then. Brutal… or is it?
Today, the average Vancouver house is $2,500,000, with a 20% down payment, which isn’t actually possible anymore based on a sliding scale…
Your mortgage would be $2,000,000.
At today’s fixed rate of 5.5%, your payment would be $12,455 or $149,460 annually.
This is approximately, 215% of your income, in 2024.
Sure, I’m using the average income and not the average household income, but it doesn’t make as much difference as you would think.
Sign me up for 20% mortgage rates with 1980’s prices all day long…
While I have your attention, please like this video to help me with the algorithm…and, don’t forget to subscribe to the channel
So, what caused the interest rates to be so high in the 1980’s?
Inflation, plain and simple.
Inflation skyrocketed in the early 80s causing interest rates to go through the roof
There was a brief period where mortgage rates even exceeded 20%
Do I believe these numbers? No, I think the government lied and the true inflation rate was far higher than recently stated, especially in 2022.
Are you trying to get into the market today and feel there is no hope?
If it makes you feel any better, I went through a brutally unnecessary five-year divorce, and I kind of feel like I’m starting from scratch myself too.
It is definitely possible to get into the market before the next real estate boom.
What would I do if I was starting from scratch? Buy an older property that needs a renovation and / or a long completion presale.
Book a time to chat with me and I’ll personally walk you through the entire process from start to finish.
If you enjoyed this video, you will probably like this one too
Book a time to chat with me and I will walk you through the entire process. The link to do so is in the description.
Once again, I’m Jessi Johnson, your guide with over 18 years of expertise.
Grab a copy of my best-selling book, ‘Rockstar Real Estate Investing‘, for more in-depth knowledge
The link to purchase my book on Amazon is posted in the description
Remember to Own Your Life!
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