Nothing seems to stop the Canadian housing market. House prices continue to increase; demand is rising, and residential construction activity is also growing. With home prices in Toronto, Vancouver and their surrounding areas, increasing enormously, many first-time buyers are being forced to either move out of the city or reconsider their home ownership dreams.
To afford a home, Canadians are going to need either to increase their income, or to decrease their housing budget (and expectations). Today creating a realistic budget is the first step on the road to home ownership. The budget defines what area can be afforded to live in, the type of home, and the lifestyle the buyer will have to lead long after the purchase.
15 years ago, it took about twice less for an average Canadian worker to save for a down payment than it takes today. The fast rise in house prices means that down payments on the average home have grown compared to the average income. Furthermore, the incomes have not risen at all in comparison to house prices. It takes longer and longer for the first-time buyer to collect the money for a down payment. In areas where home prices rose significantly, it could even longer to save the amount of money for the down payment.
In October the new mortgage rules were introduced, requiring a “stress test” for borrowers of Canada’s most common mortgage, the five-year fixed-rate. The “stress test” will ensure a borrower can make their mortgage payments if interest rates rise or their income decreases. To get an insured mortgage on an average house, the buyer will need at least 20 percent more income than before the rules came into place.
In Toronto the recent statistics show the median family income is $75,270 and the average home costs $762,975. This means prospective homebuyers wouldn’t be able to qualify for a mortgage as they. Buyers will have to meet the requirements for a more expensive loan, even if they don’t need to make higher payments. The new rules hit first-time buyers the hardest, stripping them of some of their purchasing power.
Buying a home with a friend or family member is an option. By combining incomes, individuals can qualify for a larger mortgage and split the closing costs and down payments.
But even as the housing market changes rapidly, a recent study from Ryerson University found that people’s expectations for housing aren’t really changing, even as more and more of the housing stock is condos.
Among millennials, only 18 percent prefer condo over ground-level housing. That helps to explain the heated bidding wars in Toronto and Vancouver for the number of single-family homes available for sale. The truth is that more people are buying condos is not a sign that this is what they want.
It seems most people aren’t going to see a pay raise of 20 percent or more soon, so the likely outcome of the new mortgage rules will result in a decrease in home sales and slowing or declining house prices.
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