The prospect of paying nearly half one’s household income toward home ownership costs is clearly daunting to first-time home buyer Raj Issar.

But despite Wednesday’s news that Vancouver has become easily the least affordable housing market of any major Canadian city, the 31-year-old entrepreneur is still looking to spend up to $450,000 on shelter.

“It motivates you to work harder and increase your income,” Issar said of the news that an average Vancouver resident has to spend 47.3 per cent of pre-tax income on housing — $2,076 a month — the worst level in four years.

“For long-term financial health, you need to own your own home,” said Issar. He and his girlfriend, Harj, only recently re-entered the market after trying to find a house this spring.

Skyrocketing costs are not limited to the Lower Mainland. The Royal Bank of Canada’s housing affordability index placed British Columbia behind all other provinces for affordability.

RBC, Canada’s largest bank, found the price of a benchmark bungalow in the city has risen by 9.5 per cent in the past year to $345,800 while mortgage rates increased slightly in recent months.

The index measures the percentage of pre-tax household income needed to own a detached bungalow and pay for mortgage costs, utilities and property taxes.

“While this has not slowed B.C.’s frenetic housing market yet, sharp price increases along with rising borrowing costs could begin to slow housing demand if other factors like income growth and net migration levels do not dramatically improve in the coming months,” said RBC economist Carl Gomez.

He said that while Greater Vancouver house sales have slowed recently and the number of listings has increased sharply, Vancouver’s housing affordability is likely to get even worse over the next year.

“Mortgage rates are expected to rise while a dearth of housing supply and limited developable land is expected to continue putting pressure on house prices, particularly near the downtown core,” Gomez said.

Vancouver realtor Derek Love said the housing market has cooled off considerably since the January-through-May period this year, when multiple offers were common and homes often sold for more than the asking price. He said the number of listings has doubled in some areas, giving buyers more choices and more time to make decisions.

“The number of phone calls and showings is less than a third of what it was back in April — it’s like night and day,” said Love, a principal in Coldwell Banker Love Realty. “For a buyer, it’s a heck of a lot better than it was six months ago. It’s 10 times more relaxing.”

The B.C. Real Estate Association reported this week the number of home sales throughout the province fell by 16 per cent in July to 8,106.

Love said many of his first-time-buyer clients look for homes in the $400,000-to-$420,000 price range and with a down payment of just five per cent, they often need to rent out a suite to help with mortgage payments.

“Sure, interest rates are at five per cent but I tell some of them they’d really be paying top dollar for the home and maybe should consider lower price ranges,” he said.

Issar, who operates a company that supplies products to the spa industry, is looking for a home in the New Westminster/Burnaby area in the $400,000 to $450,000 range.

“We were serious about putting offers in back in April and May but the market was just ridiculous,” he said.

“You’d put an offer in at the asking price and lose out. So we decided to wait and now it seems the market is a little more advantageous for the buyer.

“We have seen a couple of places we like and we just feel a lot more comfortable about buying now.”

One answer to declining affordability is to follow the example of Cynthia Leyland, a 25-year-old who recently sold a single-family home she had owned for just a year and bought a condo with two bedrooms and a den in a 30-year-old building.

Leyland didn’t want to disclose dollar amounts but says the condo near Capilano College in North Vancouver cost just two-thirds of what she got for the house in East Vancouver, and she made a profit of 23 per cent on the house.

“I bought the house in April of 2003 and decided to sell because there was a chance to make a big profit,” Leyland said Thursday.

“I had planned to rent for a while but I had renegotiated a five-year mortgage in April at 4.3 per cent and I was able to transfer it to the condo. It didn’t really make any sense to rent and I love my new place. It’s in a great neighbourhood.”

She plans to rent a suite in her new home to help with mortgage payments.

Leyland, a single person with a commerce degree from the University of British Columbia, has been nicknamed “the real estate mogul” by her colleagues in the marketing department at VanCity Credit Union where she works as an investment products specialist.

Buyers who want the security of a five-year mortgage today are looking at posted rates of 6.3 per cent, although most can negotiate 5.05 per cent, and qualified borrowers can get 4.9 per cent, says Dean Marsland of the Vancouver office of Invis mortgage brokers. On a typical $200,000 mortgage amortized over 25 years, the monthly payment at 5.05 per cent is $1,168.91.

Greater Vancouver Home Builders Association chief executive Peter Simpson said declining affordability is expected to have little impact on the region’s house construction market, which has surged in the past year. Housing starts for the first seven months of 2004 rose by 40 per cent over last year to about 11,200.

“We’re concerned about rising prices but we still expect the market to remain strong through 2005,” Simpson said. “Unfortunately, most of the increasing costs are beyond a builder’s control.”

He said rising land prices, building material prices and labour rates — along with development cost charges and other government fees — have all combined to force house prices higher.

“Like any manufactured product, the end user winds up paying for it,” Simpson said.

He said the market is unlikely to experience a significant downturn until interest rates shoot up a lot higher than they are right now, which would eliminate many potential buyers.

DUBIOUS DISTINCTIONS:

Vancouver and British Columbia both have the dubious distinction of leading the nation in housing unaffordability. Percentage of pre-tax household income needed to pay monthly housing costs:

Vancouver 47.3%

Toronto 37.2

Ottawa 31.6

Montreal 31.2

Calgary 28.7

British Columbia 43.1%

Saskatchewan 28.2

Quebec 30.8

Ontario 30.5

Manitoba 29.4

Alberta 26.7

Atlantic Canada 26.7

Source: CP, Vancouver Sun

© The Vancouver Sun 2004