Affordability in Canada’s most expensive cities has reached crisis levels. An average 1st time buyer in Vancouver now needs more than 10 years to save up for a down payment on a home. This is due to tough new federal mortgage rules.
As buyers in Toronto and Vancouver have struggled to get a foothold into the market for freestanding homes, condos have proved to be an increasingly affordable option for many. A surge of new condo construction has kept resale prices in check in many cities. Coupled with falling interest rates, buyers are now able to spend less of their income to afford a condo than in the past. It has fallen even more dramatically in markets such as Calgary, Edmonton and Montreal.
Spurred by low interest rates, steady income growth, and soaring prices of individual homes in Vancouver & Toronto have created a demand surge in condo construction.
In the Vancouver area, average resale house prices jumped nearly 14% over the past year to more than $950K. It now takes 109% of median pretax income to pay the aggregate the costs of a mortgage, property taxes & utilities on a typical freestanding home, according to a 4Q 2015 analysis by the Royal Bank of Canada.
Surging home prices and more difficult down-payment rules for insured mortgages took effect in the middle of February 2016. This set the stage for the typical 1st-time buyer in Vancouver now needing to save 10% of their pre-tax income for 132 months, or about 11 years, in order to afford the minimum down payment on a typical home; up from 90 months, or about 7 1/2 years, in the 4th quarter 2015.
In Toronto, the average 1st-time buyer would need to save for 77 months – more than 6 years – to afford the down payment on an average home. The cost of having a detached house now exceeds more than 70% of median household income in Toronto.
Owning a home has now become a luxury in Canada’s two hottest housing markets; accessible to independently wealthy buyers. According to recent trends, there little hope left for buyers that such conditions will change any time soon.
The rule changes in particular are pushing many 1st-time buyers into the condo market; which is currently more affordable for such buyers as there is an abundance of supply. Toronto & Hamilton are the only two major cities in which condo ownership has become more expensive over recent years. Surprisingly, even buyers in Vancouver are spending slightly less of their income on mortgage payments for condos than they did in the past. Monthly mortgage payments on a typical condo in the Vancouver area cost 34% of median pre-tax income.
Condo supply in Vancouver supply has been been increased to meet demand; so even in markets like Vancouver, condo prices have remained relatively stable over the past 5 years because of new condo construction.
In Toronto, Montreal, and Vancouver, condo ownership may be more affordable than buying a house; but it still commands a healthy premium to renting.
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