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 Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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