You did it! Your family gets the average income for Canada, and you’ve convinced your boss to work from home. Now you just need to find a home that you can afford, in the second largest country in the world. Easier said than done. Don’t worry, we got you. We hope you like small, remote towns or country towns, because that’s all you can afford.
About Today’s Numbers
Today we’re looking for cities where you can buy a home using CREA. We calculated a maximum mortgage for roughly the median household income ($100,000). We also assumed you had a 20% down payment, either through savings or through a mom and dad’s bank.
Families can use a lower down payment if they take out a high-rate mortgage. However, the maximum you can afford usually shrinks as you have to fund the rest. Insured high-rate mortgages usually make sense when you have a lot of income and not a lot of savings. If your income is already pushed to the limit, the increased room only helps wealthy buyers.
A couple of quick notes about payments and household income. People who use loan calculators often fail to enter property or heating/energy taxes. When they go to a mortgage agent, they think why they don’t qualify for the same amount they got on the internet? Don’t be these people.
We used an industry standard for these numbers since we’re only making rough guidelines. When you do this, you may see a higher or lower number, depending on the expenses. Buying an apartment means maintenance fees, which reduces your maximum loan limit. If you’re buying now, run the actual numbers with your mortgage agent.
Second, let’s talk about household income. Depending on your circle, you may not really know what “normal” income is. Some of the people I encounter don’t understand how anyone can make less than $100k. Others believe that an income of $100,000 can only be achieved if you are an elite.
We used $100,000 for income because it’s an approximate number that’s also close to the average household. Even with “high” incomes due to vacancies and inflation, Canada has not seen a leap like the United States. The average wage for labor that requires at least one technical skill is $54,100 per year. Dual-income families with skilled workers on average would make about $108,000 per year in total income. It’s slightly above the average we used.
It is also generous to assume that both family members are also skilled workers. Some arrogant people might think, OK – if you generally work, you should work harder. Often these people don’t realize that most of the value of high-growth cities is created by people with low incomes. Cafes, restaurants, art galleries – anywhere with public facing homes. These are the people who are on the lower end of the wage scale, and also a large part of why cities are so expensive in the first place.
Those who think that big cities like Toronto have higher-than-normal incomes are wrong. Despite what many assume, the income is lower and the costs of shelter are higher. So, we’re sticking with $100,000 a year in accounts.
Now on the numbers!
The typical Canadian family cannot afford 69% of the markets. Nice
What can you afford, as a typical average-income family, in 2022? not much. The standard home in 69% of the markets in the CREA Home Price Index (HPI) is now out of reach. Even Calgary has just slipped out of your reach. Sorry Toronto Millennials, we know that was your exit plan.
Families that earn $100,000 in annual income can qualify to purchase a home for about $497,900. Again, that assumes they have a 20% down payment ready, which is about $100,000. This was the good news.
What real estate markets can the typical family across Canada afford?
The price of a standard home (also known as a “typical”) home across Canada and the maximum budget a $100,000 household qualifies for, assuming they have a 20% down payment.
Source: CREA; Better housing.
The bad news is that you can barely live in a city like Sudbury (where a standard house costs $481,700) in April. Last month, cities that came in below your maximum budget included North Bay ($461,300) and Nova Scotia ($414,100). This is Nova Scotia, not Halifax ($528,100). Fast browsing across the county and hard to find a place with high speed internet at an affordable price.
Want to buy in Toronto, Vancouver or even Hamilton? oh…
Have you ever dreamed of living in cities like Toronto or Vancouver… or even in Hamilton? Good luck, because you will be hard-pressed to find something within your budget. Home prices in Greater Vancouver now require a minimum annual income of $267,000 for a standard home. In Greater Toronto, you can have a more modest family income of $263,300. In Hamilton, Canada’s most valuable city in the IMF, the family needs to earn $216,600 annually. Hamilton is nice, but you are very close to the average income in Monaco…and there are no taxes on income in Monaco.
Canada Creates a Housing Crisis, Despite Experts’ Warnings
No, Canada has not always been in such an unruly position. Housing affordability extended before 2020 in major cities such as Toronto and Vancouver. Prices didn’t start to inflate across the country until 2020, all the way to rural cities. Working from home has contributed to the disconnect, but the bigger problem is monetary policy.
The Bank for International Settlements (BIS), a central bank for central banks, dropped a warning about this recently. A bulletin for its members showing rising housing prices around the world. This was a result that was also repeated by Canadian banks weeks ago. The domestic industry may be convinced that every country with a similar monetary policy ran out of territory at the same time. However, BIS is not sold on this novel. Instead, the researchers concluded, similar reactions in monetary policy created the same environment. Easy money is responsible for “most” of the gains made by the markets.
Not only were they explaining how amazingly we failed, they offered a solution. By raising interest rates and lowering the leverage, they are seeing monetary policy undo gains in an orderly fashion. High rates and low leverage is the solution to a problem that has arisen due to low rates and high leverage. What a new concept.
Canada, world famous for its affordable housing, is going the other way. It has a number of plans to induce demand, increase financial leverage, and maximize credit growth. The Bank of Canada (BoC) warned that it may not raise interest rates as much as needed to absorb housing debt. At the same time, the federal government has plans to introduce demand stimulus and increase leverage. It is as if they are consciously implementing a plan to raise home prices.
Can an economy sustain these high home prices and stay young? We’re about to find out. In the meantime, people are in a hurry to buy a house – enjoy Sudbury.
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