Quote:
Originally Posted by GGG
Except you now have an asset that you can sell. You are better off having low interest high asset price than high interest low asset price over the long term.
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That only has value if you're cashing out and not buying a new property, or when you die and your heirs get a windfall. That pales in comparison to the much higher risk of economic damage due to price fluctuations that comes with higher asset values. A 10-20% drop in prices could put a homeowner underwater by 1-2 years in their salary. In the early '80s a 10% drop in value for the average house was equivalent to a few months of the median income. It'd have taken a 40-50% drop to even get to 1 year of median salary on the average house back then.
And of course that's comparing one tough market to another. Try comparing it to the mid '90s when the average Calgary house cost $130K ($201K in today's dollars) with 7-8% interest rates. A $130K mortgage back then cost about $950 ($1475 in today's dollars). So the average house cost about 2.35 times the median family income and the annual mortgage payments were equivalent to 21% of the median family income in Canada. That kind of mortgage payment these days would barely get you $300K.