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Driving ’til You Qualify

Driving 'til you qualify

Occasionally we stumble across an article written by one of our awesome lender partners that we decide to post with our clients. In this case First National Financial released an opinion that will most likely have an impact on homeowners in major centres such as Vancouver.

Recent statistics point to the fact that the average price of a home is falling in Canada while at the same time the cost of owning a home is still significant for buyers.

Affordability to remain a challenge

The latest report from one of the big banks projects prices will rise in all six of Canada’s major metropolitan areas this year. The increases – on top of already inflated prices and coupled with rising interest rates – are expected to have the cost of ownership outpacing (what has been until recently) stagnant wage growth.

Drive ‘til you qualify

These upward cost pressures suggest the trend known as “drive until you qualify” is likely to continue – if not increase – especially in the regions around Vancouver, Toronto, Montreal and Ottawa. But the idea of leaving town to save money on the cost of a home is not without its drawbacks.

Moving out of the city almost always requires commuting back into town for work, school or other activities. Late last year Canada Mortgage and Housing Corporation released a report that examines the trade-off between location costs and commuting costs.

Unfortunately, the study was confined to the Greater Toronto Area, which is probably the most extreme case in the country. However, the methodology can be applied to any metropolitan area and the findings are likely to be proportional, with the costs and drawbacks being relative to the commuting situation in any local market.

Commuting can drive away your savings

What the CMHC report found is that, in many instances, commuting costs can completely offset the savings of moving to a more affordable location. Not surprisingly the report finds that commuting costs rise as the distance from the urban centre increases. This negative relationship is well known and was first formalized by a German economist in the 19th century. In several cases the CMHC research found that when the carrying costs of the lower priced suburban or exurban home were combined with commuting costs the amount matched or even exceeded the cost of buying in the city.

Dave Fullerton
Dave Fullerton
Dave Fullerton, BA (Fin) is a Mortgage Professional in Langley, BC with Dominion Lending Centres The Professionals.