So many of you will not recall 1981 mostly because you weren’t born or were too young to care about mortgages and what the interest rates were. In 1981 interest rates on a mortgage were 19.75%, yup the same as a credit card. It was a great time to be having money in bonds as they were paying 17%. I know this because my grandmother was mad that year that she had to pay income tax on her savings and being Scottish she was torn between making great interest and paying revenue Canada.
In 1981 Vancouver still lead the way in prices and believe it or not Calgary was the second highest followed by Toronto. Times have changed and had oil continued at 100 dollar plus oil it may have been up there again. Expressed In 2015 dollars the average 1981 Canadian house price was $198094.00 and if you had 10% down payment at 19.75% interest your payment would have been $2914.00 per month.
Fast forward to 2015 and your average Canadian home is now worth $450886.00 and again with 10% down payment and a mortgage rate of 2.59% and your monthly payment is $1880.00. Let us take this one step further and discuss family income, in 1981 according to Stats Canada the average house hold income was $54214.00 or 4517.00 per month. In 2014 the average family income is $76000.00 or $6333.00 per month.
This would tell us that in 1981 it took 64% of the average Canadians income just to pay their mortgage, in 2015 it drops to 29.6% of your monthly income to pay your mortgage. In 1981 when I lived in Calgary and oil dropped to 10 dollars a barrel people literally walked away from their houses and turned in the keys. At today’s prices and interest rates we are in a great spot to be in an affordable situations but interest rates are bound to climb in the future, not likely to be back at 19% but they will climb over time.
I guess the lesson to be learned on interest rates is that they are great now but that will change over time and we need to be prepared to accept an increase in that monthly payment. If it was to be 19% again it would take 105% of today’s average gross household income to maintain your mortgage.