Just Van­cou­ver, Toronto and Vic­to­ria remain at some risk of price cor­rec­tion, afford­abil­ity study says

Susan Pigg – Toronto Star

Fears of a Cana­dian hous­ing bub­ble are largely unfounded and, in fact, house prices remain afford­able in three-quarters of the coun­try, with the excep­tion of Van­cou­ver, Toronto and Vic­to­ria, says a new BMO report.

Over­all, the Cana­dian hous­ing mar­ket is about 10% over­val­ued – half what it was in 1989, when prices began a 13% decline, and a third of the height U.S. houses hit before crash­ing by some 34%, says the Cana­dian Hous­ing Afford­abil­ity study released Friday.

Despite sig­nif­i­cant price hikes the last 10 years, house prices remain afford­able across most of the coun­try, with mort­gage pay­ments on the aver­age Cana­dian home eat­ing up a “mod­er­ate” 28% of fam­ily income, and just 23% when the two costli­est cities, Van­cou­ver and Toronto, are fac­tored out, says BMO senior econ­o­mist Sal Guatieri.

Van­cou­ver, Toronto and Vic­to­ria remain some­what more sus­cep­ti­ble to a down­turn, largely because esca­lat­ing prices have sig­nif­i­cantly reduced the pool of poten­tial buy­ers who can afford them, a risk that’s min­i­mal as long as inter­est rates remain low, notes Guatieri.

Com­ment: I am not sure of that. In Toronto, with the aver­age prop­erty cost­ing $505,000 or there­abouts, with 10% down and a 2.99% 5-year mort­gage, the pay­ments are just over $2,190 a month. This is about the same, or less, than rent­ing a 2-bedroom condo. The income needed to qual­ify is $93,750, not that much truly, for a cou­ple these days.

In Toronto, mort­gage pay­ments on the aver­age single-family home eat up about 43% of median fam­ily income, which Guatieri esti­mates at about $72,000. That’s up from 40% of median income eight years ago.

Com­ment: Which I do not under­stand. If you take $72,000 that is $6,000/month. The mort­gage of $2,191 above is only 36.5% of the median income. So… huh?

But that num­ber climbs to more than 50% when you fac­tor in other house­hold costs, such as prop­erty taxes, insur­ance and util­i­ties, he noted.

Com­ment: Could be. Insur­ance is around $100 month on a house, util­i­ties are $200 easy. Add in taxes of $250 and your total monthly costs are now $2,741.54 – which is 45.7% of the $6,000 monthly income. A lit­tle less, but still a seri­ous amount of money. Espe­cially when you use after-tax income and not gross income.

Homes are con­sid­ered “afford­able” when less than 39% of fam­ily income is going to pay the mort­gage and housing-related costs.

In Van­cou­ver, mort­gage pay­ments on the aver­age single-family con­sume a stun­ning 79% of median fam­ily income, and well over 80% when you fac­tor in taxes, insur­ance and utilities.

Com­ment: So Toronto is twice as afford­able as Van­cou­ver – 36.5% com­pared to 79%.

Even con­dos in Van­cou­ver are get­ting close to the afford­abil­ity limit now, the report notes.

Toronto con­dos, on the other hand, remain­ing largely afford­able, eat­ing up just 23% of median income, and 31% when housing-related costs are added.

Com­ment: Which is why 25–28,000 are com­pleted and absorbed every year, bought and paid for. Be they owned or rented, peo­ple need an inex­pen­sive place to live.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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