According to four out of five experts I just made up …

By: Sam Reiss

I love statistics. They’re bendier than a yoga instructor and more changeable than Bob Rae. Very useful for supporting either (or both) sides of any argument, such as whether or not we are on the cusp of a condo crash (more on that in a minute).

Without context, they might as well be random numbers.

A frequent refrain in the media these days is to bemoan the increase in household debt of the average Canadian. StatCan says family debt-to-income ratio has hit 163%, reportedly making us financially vulnerable.

The figures should alarm us, apparently, because the number is about equal to the ratio of average households in the UK and US just before their housing markets tumbled, but with tighter mortgage rules and more assets than our south of the border and overseas friends, how vulnerable is that really?

What does that debt-to-income ratio actually mean? With the biggest share of recent increases in household debt accounted for by mortgages, do we really have something to worry about? When I think “debt” in a cautionary way, I tend to think of credit cards, lines of credits, don’t-pay-a-cent events, and other revolving credit that indicates a bad case of “I want it all, and I want it now.”

When it comes to mortgages, I look at it this way: we have to live somewhere, and with interest rates still ridiculously low, are we better off carrying less debt and renting? Maybe, if you’re 86 and want to leave your kids fewer headaches. But for anyone with a few good income-earning years left on them, owning a home is like a retirement package, especially valuable to those who don’t have a company pension or a trust fund.

I’m not advocating debt, but I belong to the “good debt/bad debt” school of thought, with the only item in the “good debt” column being a reasonable mortgage. Not a crazy mortgage you won’t be able to afford if you miss one pay check, but a reasonable mortgage.

Forbes says a mortgage is a “good debt” when it’s under 30% of your net worth and under 80% of the value of the home. I’d go one further and say if you can carry it for less than rent, your net worth is barely relevant. I know people who love to spend, and haven’t been able to save four nickels in four decades, but when retirement rolls around, they’ll have 100% equity in a home worth far more than they paid for it.

Assuming you stay for a while and don’t fall victim to a natural disaster, real estate goes up. The trouble starts when people get in so far beyond their means, the slightest change in circumstances has a butterfly effect and their whole lifestyle is ripped out from under them. That’s never smart.

But a mortgage you can afford? Go for it. Owning a home may be the only savings plan you ever stick to.

***

I could spend days reading about the softening and potential crash of the condo market lately — but I’m not going to. Reading the same non-news over and over just ratchets up the anxiety, which the chief economist at the CIBC this week said is the last thing we need.

“Panic is the worst thing that could happen because when that mentality sets in and people become irrational, it’s hard to forecast how low prices will go,” said Benjamin Tal. (He also said, regarding those debt-to-income numbers and the imminence of a market crash, that the people who have taken on more debt have a much higher credit score than the Americans who did so prior to their crash.)

Not panicking is sound advice. Look, I’ll admit the market can’t just go up and up and up; or rather, it can over a longer period of time, but there does need to be a softening, and we’re about to experience it. However, we have been here before. Markets are cyclical.

We’re not in grave danger of a collapse — there are no underlying economic reasons for it. People are going to continue to want to live in downtown Toronto; in fact, I think they’re going to continue to want to live there in enormous numbers. The revitalization of Regent Park and the waterfront, the possibility of a casino and gaming complex, increasingly interesting architecture and celebrity chef-helmed restaurants are turning Toronto into Manhattan Light. And I mean that in a wonderful way.

We just need to exercise a little patience. I think we’re looking at a year or less of a buyers’ market. If you’re trying to get onto the property ladder, there are lots of great projects around, and yes, prices are softening. It’s a great time to move up, too, as the gap between what you own and what you want temporarily narrows. Enjoy it while it lasts. I suspect it’ll be a different story less than a year from now.