The new data on multiple-property owners is part of a program started by the government in 2017 to get a better picture of the real estate market after prices exploded in Toronto and Vancouver.
You did it! You convinced your parents to gamble their retirement by pitching you a downpayment. Now all you need is to qualify to carry a mortgage, right? That might be a problem according to Q1 2022 data from National Bank of Canada (NBF). Carrying a mortgage on a typical home now requires a minimum income 50% larger than the median family currently makes. That’s across Canada’s cities too, not Toronto or Vancouver. A typical home in those cities requires closer to a quarter mil per year.
Lifestyles of the rich and famous bungalow owners, right?
Your Household Needs To Earn $154k/Year To Own A Typical Home
Canadian real estate is experiencing the worst affordability in over a generation. It worsened 4.9 points in Q1 2022, marking the biggest deterioration in over 27 years. According to the bank, affordability over the past year eroded at the fastest pace in at least 40 years.
A typical home now requires more than half a household’s family income for the first time since the early 90s. If you’re thinking well, at least it’s been this bad before — not exactly. Canada is an older country now, so the median income slants higher to more experienced (likely) homeowners. Since you’re probably younger than the median, you most likely make less. More succinctly worded, younger buyers likely have it a lot worse today.
Alright, Egghead — what does that mean? A typical household needs to earn $154,400 in annual income just to be able to afford to service the mortgage in Q1 2022. That’s an increase of 18.0% (+$23,500) from last year, so hopefully your household income jumped by a fifth.
Remember, this is after the downpayment is secured and assumes you have no other debt. Regular loan payments, such as a car or student loan? You’ll need more income.
Toronto Or Vancouver Mortgages Need At Least $211,600 Per Year
Yes, those previous numbers were for a typical home across Canada’s major cities. If you want something in Toronto or Vancouver, you’ll need a lot more. Toronto required a minimum household income of $211,600 per year as of Q1 2022, up 23.2% (+$39,800) from last year. Vancouver is even a little steeper at $228,600, up 18.6% (+$35,800) over the same period.
To be brutally honest, most young people in Canada will never be able to own a home in these two cities. Households need more than double the median income just for the mortgage payments on a typical home. If you’re not a high earner but still want a home, may we suggest somewhere more affordable — like New York City?
Hamilton and Victoria Real Estate Doesn’t Provide Much Relief
Toronto and Vancouver residents were flooding smaller cities before 2020. However, prices have increased much faster than the cities they fled, making it a much less attractive escape. Hamilton, Ontario now requires a minimum annual household income of $183,300, up 26.8% (+$38,700). Victoria, BC reached a little higher at $190,400, up 5.8% (+$10,500) from last year. Cheaper than Toronto or Vancouver, but still nearly double the median income.
Canada’s Most Affordable Cities Are Quebec & Winnipeg
The most affordable cities to buy in are now Quebec and Winnipeg. In Quebec City, a household income of $69,900, up 11.3% (+$7,100), is still enough to carry a mortgage across the country. Feeling rich? Splurging on pricier Winnipeg only requires a median household income of $79,800, up 12.7% ($9,000) from last year.
Most likely a lot of questions about what happens next with higher interest rates. Typically higher interest rates will increase the cost of debt servicing. If prices don’t fall faster than mortgage rates rise, affordability worsens. However, higher interest rates also slow demand and erode leverage.
Investors, about a third of buyers, will find housing much less attractive. Especially negative cash flow ones, that have been relying on appreciation. They’re more likely to realize some of their profits and put their excess property one the market. More supply with less leverage means lower prices. This is distinct from more supply with higher leverage, which can increase prices.
More succinctly, affordability will erode in the short-term but will improve long-term. This level of disconnect has never lasted forever, and this time isn’t different.
Article by: Stephen Punwasi
TORONTO, May 18 (Reuters) - Toronto home prices are falling, but not everywhere.
The median home price in the greater Toronto area has slipped 8.9% in the last two months under the weight of back-to-back Bank of Canada rate hikes. This followed a 54.5% surge in two years to a record median home price of C$1.2 million ($930,160) in February.
Those pandemic gains propelled Toronto into the No. 2 spot on the UBS real estate bubble index.
But the declines are masking the resilience of Toronto's core, where the median price has not fallen but rather climbed 5.2% from February to April.
The rapid price declines in Toronto's suburbs and relative strength of the city core may be a preview of how a potential correction could play out across Canada. Smaller cities where prices jumped the most are at greater risk of steep declines than major urban centers like Montreal and Vancouver.
Prices in Toronto's core, which is dominated by condos, rose by a far more subdued margin than the city's suburbs during the pandemic, leaving the area less vulnerable to a correction. And, as the pandemic ebbs and companies call remote workers back to offices, many who moved are rethinking the wisdom of living further afield.
"The core is doing significantly better than the suburban market," said Realosophy Realty President John Pasalis, adding that multiple offers are still common downtown.
The Durham region and Simcoe County on Toronto's outskirts, where prices skyrocketed more than 85% during the pandemic as white-collar workers arrived in droves, have seen prices fall by 15% in two months. Active listings in the Toronto metropolitan area excluding the city's core have nearly quadrupled from the beginning of the year.
Some home buyers miss the convenience and lifestyle of living downtown.
"Their friends and their hangout spots aren't really in those suburban areas. So they're all trying to kind of migrate a little bit further down south again," said Tim Keung, chief executive of TimSold Real Estate, which specializes in Toronto's northern suburbs and beyond.
That reverse migration has helped buoy demand for condominiums and higher-density homes in central Toronto.
"I'm working with people who moved out of the city in 2020, and they now want to have a small condo in the city because their workplace that promised they can be remote forever is now saying, 'You have to be in the office two to three days a week,'" said Toronto realtor Lisa Bednarski at BSpoke Realty.
To be sure, Toronto's core is slowing as well. The average days on market for a property edged up to 15 in April from 13 in February, with active listings up 69.9%. And the median price leveled off in April from March.
"The demand fever in Canadian housing has broken," Robert Kavcic, senior economist at BMO Economics, said in a note. "Ontario markets are weakening most and fastest, especially further outside the core of Toronto."
($1 = 1.2901 Canadian dollars)
Article by: Julie Gordon and Nichola Saminather