It’s official: for most Canadians, it’s impossible to afford a house in Vancouver. RBC recently released a report where they calculated that owning a detached house in the city exceeds the average Canadian’s pre-tax earnings, and Toronto isn’t far behind.
In February 2016, the average price of a detached house in Vancouver hit $1.3 million, a 27 per cent increase over the previous year. Based on the median income of households in the Vancouver area, the bank calculates that it would take 109 per cent of pre-tax income just to cover basic costs to own a house in Vancouver – mortgage payments, property tax, and utility bills. That’s not a typo – all their money, plus 9 per cent! And it doesn’t include money for anything else, like food, clothes, or entertainment.
In order to qualify for a mortgage on a detached house in the city, a family would need to earn a combined $215,000.
Which leaves condos. “Purchasing a condo is the only realistic option for most first-time buyers – although this too has become slightly less affordable in the last two quarters,” says RBC.
Tapped out in T.O.
In Toronto, the average price of a detached house now exceeds $1.2 million, a 16 per cent jump over the previous year. Paying for a house like that would eat up about 71 per cent of a family’s pre-tax income. Even in the surrounding 905 suburbs, detached homes now sell for more than $800,000 on average.
Cheap By Comparison
Outside of the two most populous cities, RBC says “housing affordability generally remained stable across Canada” in late 2015. Nationally, RBC calculates that homeownership, on average, eats up nearly half (46.7) of our pre-tax income. One positive upside to plunging oil prices is that home ownership in Calgary is becoming more affordable. For those that still have jobs anyway.
Living Within Your Means
While the news is depressing for would-be buyers dreaming of owning their own home, there are ways to make sure you live affordably.
The Canada Mortgage and Housing Corporation recommends that monthly housing costs – mortgage principal, interest, property taxes, utility bills, and for condo buyers, condo fees – shouldn’t be more than 32 per cent of your gross monthly income. The CMHC also has an affordability calculator on its website that allows you to enter your income and various monthly expenses to determine what sort of a mortgage you could comfortably pay off.
Other tips for affording housing:
•You can withdraw up to $25,000 from your RRSPs to use towards a downpayment ($50,000 per couple) under the federal government’s Home Buyers’ Plan. You could also make a larger down payment, meaning lower monthly or bi-weekly mortgage payments, and could also save you money on CMHC Mortgage Loan Insurance, which is required whenever the down payment is less than 20 per cent.
•Before going to open houses, speak with a mortgage broker or your banker to get a mortgage pre-approval. This doesn’t guarantee that you’ll qualify for a specific mortgage amount, but does give you a reasonable ballpark figure to start shopping around with.
•Don’t allow emotions get you caught up in a bidding war. You could end up paying much more than the house is actually worth, and then find yourself unable to secure a mortgage on the property.
Related Read: How a Bidding War Can Cost You Your Mortgage>
•Consider properties with rental units – or areas that could be converted to legal apartments – to help offset housing costs.
•In both Toronto and Vancouver, condos are still viably affordable for first-time buyers, though perhaps not in the most sought after buildings and neighbourhoods.