We owe more than most Canadians, but relax, it’s invested
Michael Kane
Sun
CREDIT: Peter Battistoni, Vancouver Sun Mark Sturrock and Cari Hawthorne purchased a house in Richmond last year as an investment from Realtor Anita Chan (right). The house has appreciated 20% over the year.
It’s a wonderful life for most British Columbians, even if it is costing us more than we earn in a year, the province’s chartered accountants say.
Not only do bigger mortgages mean we owe more than other Canadians, our savings rate is zero and we’re the only jurisdiction monitored for the annual BC Check-Up where personal debt, divided between every man, woman and child, exceeds current disposable income.
But take a deep breath because we’ve got the best air quality and the highest health care spending per capita, which helps to explain why we are among the healthiest Canadians.
We also have the fewest young people without high school diplomas and the second lowest level of people dependent on social assistance, according to Tuesday’s third instalment of the BC Check-Up, in which the Chartered Accountants of B.C. rate the province as a place to live.
Crime remains markedly higher than the national average but we’re no longer the worst in the land. That dubious honour goes to Saskatchewan.
And all that household debt is no cause for alarm because more than three-quarters of it is invested in real estate, which has been soaring in value while the share of disposable income required to service our debt is smaller than ever.
“I am not worried about getting into debt because I see it more as investing in my future,” said Richmond‘s Cari Hawthorne, 29, who bought her first condo when she was 22. She sold that to buy another last year, and also purchased a $347,000 house as an investment property with Mark Sturrock, 30. The house generates enough rent to cover most of their payment on a five-year mortgage locked in at 4.3 per cent.
Hawthorne, a personal trainer who owns Catalyst Conditioning Studio in Richmond with a partner, credits her parents with encouraging her to get into the housing market early. “They taught me well.”
Sturrock, who owns a painting business, For Your Walls Only, also bought a condo about two weeks ago.
Per person debt exceeds disposable income by 18 per cent in B.C. but the accountants say that’s not menacing at all if we look at net worth rather than the debt-to-income ratio.
When the appreciation in the value of personal assets like homes and investments is counted, B.C.’s average savings rate goes from zero to an impressive 52 per cent, according to TD Economics. Throw in contributions to social insurance and employee pensions and it climbs to 60 per cent, says Scotiabank.
Across Canada, individual net worth increased in 2004 to an all-time high of almost six times disposable personal income, the chartered accountants say.
But what if interest rates climb? They are going up but the Bank of Canada says most households would begin to have debt servicing difficulties only if they hit a “highly unlikely” nine per cent.
In addition, three-quarters of borrowers have fixed-rate mortgages which will protect them for two to five years while personal disposable income is expected to increase.
But what if West Coast house prices plummet as they did in the early 1980s? The accountants cite “significant differences” between conditions today and then, including higher incomes, slower price appreciation, much lower interest rates, and fewer unoccupied homes, a sign of less speculation.
“While housing prices are predicted to soften, especially as interest rates rise, a major reversal in the positive trend in housing prices is not anticipated, particularly in British Columbia where population is growing,” the Check-Up concludes.
Chartered accountant Anita Chan, a Richmond realtor who helped Hawthorne and Sturrock with their purchases, says she is as busy as ever and finds first-time buyers are more concerned about home prices going up than they are about rising interest rates.
“They are excited about getting into the market because they don’t want to rent,” Chan said in an interview.
Richard Rees, CEO of the Chartered Accountants of B.C., said “If you have debt, mortgage debt is a better kind to have because it is connected to an asset, your home.”
