Rachel Sa – Toronto Sun

The average price for a single-family home in Toronto hit $606,000 last month.

That’s according to a new system for tracking home and condo sales launched last week by the Canadian Real Estate Association (CREA).

It’s not a misprint. The cost of a Toronto house is up by approximately 50% since 2005.

But, fear not! According to CREA, the astronomical cost to be a homeowner in the 416 is actually still affordable to the average Torontonian.

Comment: But it is, truly it is. Let’s take the average price and work out the mortgage payments using the average 5-year rate. So, if the average detached is $606,600 right now and the 5-year rate has gone up to 3.09%, then the monthly mortgage payment with 20% down would be $2,342.22. Back in 2005, mortgage rates were around 6.05% or so. Thus, for a house priced $403,593, the monthly mortgage payment would have been $2,096.13 – a difference of about $250. But, taking inflation into account, that $2,096.13 in 2005 would be worth about $2,341.59 as of last year. Basically the same. So yes, the average cost to own a home in the 416 is as affordable as it was in 2005.

Breathe, Rachel. Just breathe.

Then go look for these mythical average Torontonians and learn their secrets. Perhaps also borrow some money. Hey, we can afford it!

In all seriousness, if it’s true the “average” Torontonian doesn’t gulp when dropping well over half-a-million on a regular old house, then we have truly pushed the middle class out and the city is becoming the exclusive playground of another demographic all together.

Comment: But you are forgetting, this is an average. Which means that half of the detached houses in the 416 are less than $606,600. If you do not need a 3,000 square foot Victorian with granite and stainless steel and potlights across the street from Trinity Bellwoods, then I can show you all sorts of options for $400k. No, they won’t be near Yonge & St. Clair, but such is life.

Unless you already have a foothold in the downtown market, how on earth is the average Torontonian going to come up with a 20% down payment for a $606,000 house?

Comment: They do not need to, they only need 5%. And they do not have to buy something that expensive. I have many clients who are first time buyers looking in the $500k range. They have good jobs, money in the bank and sometimes help from parents. That is how they do it. The income need to qualify for a $500,000 house with 5% down and 25 year amortization is just under $98k. Many couples make 50-60% more than that, easily qualifying. And if they have 10% down and ma & pa chip in an extra 5%, then that mortgage only costs them $2,066 a month – less than rent on a 2-bedroom condo.

Is it any wonder so many people, especially young, first-time buyers, turn to the condo market?

Comment: But that is not always a price issue, it is a location issue. They do not want to live at Danforth/Dawes in the only house they can afford for $400k, so they choose a condo downtown. This way they can walk to work and have every convenience nearby. Housing choices are not always dictated by price.

While they’re still fortunate to be able to afford to buy a home at all, the idea of owning a house in the city — or the Holy Grail of Toronto real estate, a detached house — is a dream. A sweet, sweet dream: I’m picturing a front lawn and a backyard. Sigh.

It’s not the cost of city real estate per se that has me steamed, although the thought of how to buy a house that isn’t ready to collapse into a heap of lead pipes and drywall has kept me up at night recently.

It’s that real estate organizations like CREA are still trying to sell our uber-expensive housing as affordable. That is irresponsible in my view and, to many, insulting.

Comment: But it is true, as I have shown. You are only looking at the sticker price, not the monthly cost. We all buy houses (and cars to a large extent) based on the monthly cost. Go back 30 years and a $200,000 mortgage at 18% cost about $2,370 in 1981 dollars. Adjust for inflation and that works out to $5,500 today! And that is more than double the $2,342 a $606,600 mortgage at 3.09% costs today (both amortized over 25 years with 20% down). So housing is actually more affordable now than ever before.

The other line that supposedly makes Toronto housing affordable is that, compared to other big cities, our real estate is a steal.

That may be true, but I don’t really care how much cheaper Toronto is compared to London or New York.

We’re Torontonians. We don’t live in London or New York.

And, in Toronto, $606,000 is still a whack load of cash in a city that can’t even get its act together to provide adequate transit.

Comment: That is for all single family homes. Semi-detached cost less, townhouses even less. Detached are a lot more, around $725,000. But semis can be had for $500k or less, towns for $300,000 – even in cool areas!

I’m not anti-home-ownership; the opposite, actually. I own a condo (well, the mortgage company and I share it at this point) and I hope to buy a house in the city with the fiancé after our wedding.

This, of course, will take our combined incomes and a heck of a lot of scrimping and saving. And there’s nothing wrong with that.

What I’m against is irresponsible home ownership.

That is, if you’re barely scraping by to make your monthly payments now and an (inevitable) uptick in interest rates results in a personal financial crisis of cataclysmic proportions, well then, guess what? That’s not sustainable, and it’s certainly not affordable.

Comment: You got it! Just because the bank says it will give you $700,000 does not mean you need to spend it all! I spent about $200,000 less than the bank agreed to give me, just to be safe. I have a great house, even if it is not quite where I want it. But I can afford it without breaking a sweat. In time, I will build equity and I will move up to something I like more. But that will take time and I am okay with that. Trust me, in my line of work it is VERY easy to get jealous, I see amazing homes every day. But I know that if I am smart and take my time, I can have something lovely one day too. Or win the lottery, whichever comes first.

In a lagging economy, at a time when we are bombarded with messages of austerity, reminded over and over that the average Canadian carries too much debt and that we must start to live within our means, the fact we’re being told expensive real estate is affordable, thanks to low interest rates, is a recipe for disaster.

Comment: No no no. Being told it is affordable has nothing to do with it. Being affordable or not has nothing to do with it. It is our consumer culture that tells people they have to have the best, all the time, that is the problem. People who buy 70″ TVs when 40″ would do. Buying a BMW X6 for $120,000 when a Chevy Equinox would be just fine – and 1/5th the price. We have all been taught that if it does not have granite and stainless and potlights, then it is no good. That is the problem. Managing expectations and trying to keep spending down.

But then, we can’t expect the CREA, or any other organization with a vested interest in keeping Toronto’s real estate market red hot, to hold our hands.

Comment: You are all adults, are you not? And we do not make things up. There are around 100,000 sales in the GTA every year. That is 100,000 sellers, 100,000 buyers, 100,000 listing agents and 100,000 buyer’s agents. Never mind the friends and family offering advice to all involved. Some half a million people are involved in a years sales, which is where the prices come from. You guys all create the market, not CREA. Anyone can interpret data in any way they want, but the facts speak.

People have to be their own watch dogs.

And we need to have informed, realistic expectations about what we can and cannot afford.

Comment: You got it!

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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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