Tag Archives: Property Taxes
Real estate cheat sheet: how affordable are homes in Toronto?
Toronto Life
Two of Canada’s biggest banks released reports this week examining the affordability of homes across the country, and Toronto didn’t come out looking good. The city’s one of the least affordable in the country, second only to Vancouver (which is one of the priciest markets in the world). We break down the numbers below.
• Real estate watchers gauge affordability by the proportion of pre-tax family income required to pay the mortgage and other related costs like home insurance, utilities and property taxes. Anything over 39% is considered unaffordable. In Toronto, mortgage payments on the average single-family home account for 43% of household income alone, according to a recent BMO report. That number is closer to 50% when other costs are included, which makes the market vulnerable to a correction if interest rates spike or incomes fall.
Comment: They use an income of $71,000 with no explanation where it comes from. But, let’s go with it. The most recent stats show an average housing price of $555,423 as of mid-February in the 416 only. With 20% down, that means a mortgage payment of $2,121.54. So, $71,000 annually is $5,916.67 monthly. That gives me 35.9% of pre-tax income. That is NOT 43%.
• An RBC Economics report further breaks down the numbers by type of home. At $545,6000, the average detached bungalow in Toronto devoured 52.8% of median income in the fourth quarter of 2012. That was slightly (0.4 percentage points) better than the quarter before, and RBC attributed the minor improvement in affordability to slower market activity in the second half of 2012.
Comment: Huh? That amount is lower than the average… But regardless, the mortgage payment on that amount is $2,084.02 which would account for only 35.2% of the median income of $71,000. And if that number is national, which the report is, then it is way off. Toronto incomes would be skewed higher, making these percentages even lower.
• Two-storey homes are the most unaffordable of all. Housing costs for a standard two-storey comprise over 62% of household income with an average price of $640,500, according to RBC. In other words, it takes an annual income of $131,300 to qualify for a benchmark mortgage.
Comment: That number is way off, the average detached house in the 416 is $817,217. Now that is expensive. Oddly enough, with 20% down, the income to qualify is $132,369 – almost the same as they got. They should not match, not with a $180,000 difference in house prices. Their math is SO far off… Now, if we use GTA numbers as a whole, then the recent stats show an average of $646,435 for detached homes. That would then mean an income of only $107,906 to qualify. And using those same numbers, the average property sale is $509,061 which would be $1,944.45 – 32.9% of monthly income.
• Condos are still reasonably affordable. BMO says housing costs on condos account for just 31% of median income. RBC put that number at 33.1%.
Comment: GTA condos averaged $330,361 in the first half of February, which would be only $1,261.87 and thus only 21.3% of median monthly income. I am curious where their numbers come from, mine come from TREB. And have a feeling the %s all drop further when we take GTA incomes instead of national averages.
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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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Biggest property tax increases expected in Davenport, Willowdale neighbourhoods
Andrew Livingstone – Toronto Star
Homeowners in the Davenport and Willowdale neighbourhoods will likely end up paying more property tax next year, based on recent assessments.
But they’re also the neighbourhoods with the highest increases in property values.
“Our values are consistent with the trends and patterns in the real estate market,” said Joe Regina, with the Municipal Property Assessment Corp. which assesses properties across the province. “These are generally in high demand (and) it’s outpacing their supply.”
Parkdale-High Park, Trinity-Spadina, Rosedale, Davenport and Willowdale all came in well above the average 22.8-per-cent increase in the value of city homes since 2008.
The assessments, which are done every four years, will be used to calculate property taxes in 2013. To cushion the impact, the increased assessments are phased in over four years, with the average assessment going up 5.5% per year to reach the full amount in 2016.
The key to determining a tax bill is where a property ranks with respect to the average in the municipality. If the increase in assessment has been above average, the homeowner will see a tax increase; if it’s average there will be no change; and if it’s below average, the resident will get a tax decrease.
Homeowners in hot real estate neighbourhoods are at highest risk of seeing their property taxes go up in 2013.
Davenport ranked highest out of Toronto’s 44 wards with an increase of 33.72%. Wards 23 and 24, both in Willowdale, were the next highest with 31.44% and 29.56% increases, respectively.
Property assessments in Trinity-Spadina rose 29.25%, Rosedale jumped 28.73%, and Parkdale-High Park was up 27.03%. Rouge River in Scarborough recorded a 27.41-per-cent jump in assessed value.
Wards in North Etobicoke, Centre Etobicoke and York West were well below the average. Assessed value of York West properties increased 13.98% (Ward 8) and 14.97% (Ward 7). In Etobicoke North they rose 15% (Ward 1) and 16.03% (Ward 2), while Etobicoke Centre wards increased 16.64% (Ward 3) and 17.39% (Ward 4).
Due to the variety of buyers in the market it’s hard to pinpoint what areas will be hot, however neighbourhoods in the vicinity of the subway lines are popular for first-time buyers, said John Pasalis, president of Realosophy Realty.
“These areas are most affordable,” Pasalis said. “Neighbourhoods like the Dovercourt area, they’ll be popular.
An area with houses around $600,000 or close to downtown and near the subway will be in high demand, Pasalis said, adding some areas in the east end, like Leslieville, remain affordable, but he imagines that won’t last long.
The Toronto Real Estate Board home index lists the Junction Triangle/High Park area as having the highest increase in house values measured over five years – not four, like MPAC – at 41.77%.
Pasalis said “blue chip” areas will remain in high demand for second-time buyers and families looking to upgrade and focus on quality schooling.
“Davisville, Riverdale, the Beach, they’re still within reach for most second-time buyers,” he said. Houses in the $750,000 to $850,000 range are still available to dual-income families with kids in those areas, he added.
Sales in condo-centric areas like Liberty Village and City Place will slow in the coming years, Pasalis said.
If the market cools and prices begin to dip, condo owners looking to upgrade to something bigger might be caught in a tough spot, he said.
“Some young condo owners are buying houses first before selling their condos and they end up being in a pinch if it doesn’t sell on time,” he said. “It’s already starting to create challenges for some people, and I think that’s going to continue.
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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.
—————————————————————————————————–
Incoming search terms
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When rent money isn’t dead money
Carolyn Ireland – Globe and Mail
Bay Street money manager Ming Lam isn’t against home ownership – he’s just against ownership at prices that he thinks are higher than they should be.
Comment: What he THINKS they should be? So this is all based on what he THINKS? Not reason or logic, data or statistics? That is one way to get in trouble… No human opinion is higher than the truth.
He admits that this view often leaves him standing alone at cocktail parties.
“You just bought a house? Are you nuts?” is a sure conversation stopper, he agrees, laughing.
Mr. Lam has been bearish about Toronto’s real estate market for years and he cautions that people who think buying a house is always a good investment may not fully understand the costs.
Comment: And yet, those who bought 5 years have seen their home’s value double. Bad idea… I know…
A principal at Silver Heights Capital Management in Toronto, Mr. Lam is an avowed renter. He knows there’s an emotional element to owning a house but he has an emotional attachment to making money.
He believes people are too quick to plug some numbers into a mortgage calculator to see what house they can afford compared with how much they might shell out in rent. Often they go into denial about the taxes, depreciation and maintenance.
Comment: But houses in Toronto do not depreciate. Anyone who has bought a house in the past 20 years has seen the value go up. In fact, but for a brief blip in the early 1990s, prices have always risen. In 1966 the average sale price was $21,360 and last year it was $465,412 – ’nuff said. Taxes are LOW in Toronto. The average house pays about $225/month (using the average of $500,000 for both condos and houses, sampling 41 properties for sale in the downtown core). Maintenance is maybe 1% of your home’s value per year – a fair trade for the 8-10% in value you get annually. The average house, at $500,000 with a 5-year rate of 3.29% and 30-year amortization costs $2,333/month for mortgage and taxes – with 5% down. It takes $90,000 income to qualify. Really not a big deal!
A property tax rate of 0.8% on an $800,000 property is $533 a month, he points out. In addition, owners have no choice but to make major repairs such as replacing the roof or installing a new furnace. He thinks a realistic estimate is about three% of the value of the house per year.
Comment: Huh? The taxes on most houses is certainly not $6,400/month. What the price is is NOT what the appraisal is. And is thus not what you pay taxes on. I love people who are wrong, they use the fuzziest math in a attempt to prove a point that is wrong to begin with. There are 27 homes for sale right now in Toronto’s central districts (C01-C15) in the $790,000-810,000 range. The average taxes are $4,300 per year. Do the research before you speak, that is what I do!
Once those sums are paid out, the amount available to put towards the mortgage is drastically reduced, he argues, and makes renting the more attractive option.
Comment: But renting gets you nothing, that money is essentially thrown away. If I pay $2,000 a month on my mortgage, plus $500/month in taxes and $5,000 per year in maintenance (which is WAY too much) – I don’t care because I am making $50,000 per year on my $600,000 house. After 10 years I can sell it and put $200,000 in my pocket. If Mr. Lam moves, he gets… nothing.
Mr. Lam recognizes that he possesses something many homeowners don’t: The acumen to invest in assets other than real estate. In other words, he can take the money that he saves by renting and funnel it into stocks and other investments.
Comment: And I can also invest in the same things. He also has housing costs, as do I. We both have discretionary income after that that we can do what we want with. Just my housing money is not being wasted, like his.
Many people would plow the money saved into Caribbean vacations if they didn’t have the forced savings plan that a house provides.
“If you don’t have the discipline to save and invest the money from the cost savings of renting then buying a home might make sense for you even if house price levels are higher than average,” he says.
Comment: High than average? What average? That doesn’t even make sense. More of the fuzzy math to justify a point that is wrong.
He says there are lots of barometers people can look at to determine whether real estate in Toronto is expensive or cheap right now, but in his opinion house prices and income levels should have some correlation over long periods of time.
Comment: They do, in monthly costs. The average rent on a 2-bedroom unit is around $2,200 a month. Not a ton more than the mortgage and taxes cost on a $500,000 house. That is the correlation. Trying to tie rents to purchase prices makes no sense, it is all about what people pay every month.
“Generally speaking, I think that the average family should be able to afford the average home,” he says. “It’s a simple litmus test and one that I think most people would agree with.”
Comment: The median income in Toronto in 2009 was $66,790 and the average house price was $395,460 in the same year. With 20% down, they could afford it at the rate of 4.19% available then. And those are just averages I pulled from TREB and StatsCan (and this simple example does not take into account that the bottom chunk of income earners tend to rent, not buy, so they skew the income figure down – for actual buyers, it would be higher). But, if we take the numbers from a large mortgage broker – CanEquity – we see that in Toronto the average household income on mortgage applications is $125,000 and the average home loan is $262,000. That shows that the average family can EASILY afford the average loan they are getting. With a 5-year rate of 3.29% and 25-year amortization, the monthly payments on that are $1,279. Add in another $1,000 for taxes and maintenance and you are pretty much bang-on the $2,200 the average 2-bedroom rents for. But the rent money is gone, the house is worth something. Like leasing a car vs. financing – one you own at the end, the other belongs to someone else.
He’s not sure that Toronto house prices pass the test right now with a ratio of something like seven to one. Low interest rates are driving the “affordability” of real estate, he adds.
Comment: Ratio of 7 to 1? What ration? Seven of what? One of what?
He doesn’t know what interest rates will do in the future, but he thinks potential buyers should be stress testing their notions of what they can afford. What if interest rates were 4% or 5% higher?
Comment: Rates will rise, we all know that. But to suggest that they will rise 4% or 5% is just stupid. Anyone with any sense – and Mr. Lam claims to know a LOT about money – knows that that will not happen. That would put posted bank rates over 10% – a rate we have not seen for 20 years. More fuzzy math… Real math is that if rates rise 2% then monthly costs on a $500,000 mortgage would rise by $500. Not chump change, but not enough to bankrupt the average homeowner.
“I’d certainly want to know how it would affect my finances – just in case.”
Comment: Why? You rent, it does not matter. But to quote a BMO survey from March: 57% of Canadian homeowners say that they could still afford their home if interest rates were to climb by 2%. However, 20% indicated that a 2% rise in rates would hamper their ability to afford their home; 23% indicated they were unsure if a rise in rates would affect them. There you go, many Canadians know how it would affect their finances. And most are not concerned.
—————————————————————————————————–
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.
—————————————————————————————————–
Incoming search terms
Related posts:
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