Toronto

Toronto Real Estate Is Still “Affordable” For Almost Half The City

Toronto real estate prices are sky high, but almost half of the city can still “afford” it in the current lending environment.

Toronto Real Estate Is Still “Affordable” For Almost Half The City

Toronto real estate prices are still climbing in some segments, but who can afford it? One of the goals we have here is to put data to debates, even if we don’t necessarily agree with the point. Today we’ll be doing that with how “unaffordable” buying a typical home is in Toronto. Almost half of the city’s families can afford a typical home at these prices… regardless of whether it’s a smart buy after making such large price climbs.

Benchmark Price of A Home In Toronto

First off, let’s look at the price of a typical home in the Greater Toronto Area (GTA). According to TREB, the benchmark price is $750,800, 12.22% higher than last year. A household would have to make just north of $85,000/year to buy a home in this environment. This assumes a conventional mortgage, with a 30 year amort, at the current posted mortgage rate of 2.89%. At $85,000/year it won’t be a comfortable buy. However, they could buy under current lending standards.

Almost Half of Households Can Afford The Benchmark Home

Running this against Census 2016 numbers, we see a ton of people could buy. There’s 1,047,345 that make enough to “afford” a mortgage on a benchmark home. That works out to just over 49% of the city, that can afford Toronto’s “bubble” prices. I bet that’s a lot more than most people are expecting.

Does It Make Sense?

The current low interest rate environment does make the cost of carrying a home very, very low. This won’t always be the case, and many people won’t be able to pass a stress test on rate hikes. Additionally, quite a few people would have a hard time getting a large enough down payment for a conventional mortgage. So, should everyone buy a house once they make that much? Most definitely not.

In no way am I saying this market is a sustainable or a sensible buy right now. I also can’t stress enough that homeownership is a lifestyle choice, not always a good investment.  However, it does drive us a little crazy when people make statements like “no one can afford to buy in Toronto.” That’s absolutely not true. Can they afford these homes against rising rates, and will they retain value? Those are other points, for another day.

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16 Comments

  • Reply
    BB 1 week ago

    LOL … the housing in TO is totally affordable for an average family for as long as dietary intake comes from McDonald’s, shopping is done at Dollarama and thermostat is set at 17 degrees during the winter months.

  • Reply
    Ham 1 week ago

    Goes to show that anyone, their grandmas, their dogs and their cows can stretch themselves thin to buy multiple places in Toronto. Hence the bubble. The trouble is that they are often financially illiterate and have not calculated if they can afford the places at higher interest rates.

  • Reply
    Peter 1 week ago

    There in lies the problem,,,,, interest rates will rise and that will change things dramatically for many people.

  • Reply
    Functioning Brain 1 week ago

    riddle me this…

    how are these people who make 85K gross…59K net after tax suppose to save the 20% or 150K for that downpayment?

    So they are clearing about 5K a month…rent I think is high as heck atm so lets say 2K goes to their current housing lets cheap out and say $500 goes to their transportation and lets say they have NO debt, NO kids, buy pretty much nothing, do nothing, never get sick and only spend 500 bucks amonth on food.

    So now this 85K group who can “in theory” afford a $750K house in toronto spends 3K of their 5K net a month to live (who are we kidding btw we all know they have to spend a hell of a lot more than that I would say they need to spend at least $4500 a month to get by in this city, but I digress) they have 2K left over in the MAGIC scenario to save for that 150K 20% down they need in your scenario….

    so at 24K a year save it will take em about 6.2 years to save that down payment….

    in reality they are prob already operating at a deficit or maybe have $200 -$500 a month overage so lets go in the middle and say they can save $350 a month to the tune of $4200 a year, it will take them 35 years to save that down payment….

    so in short NO the majority of Toronto can NOT afford a home at 750K with an income of $85K, you my sweet need to upgrade both your math and logic skills…and they won’t be able to afford it to an even deeper extent as these interest rates go BANANAS in the yeras to come.

    If I had a household income of 85K atm I WOULD BE SCARED SHITLESS…cause I have no clue how you could operate in the current markets with so little!

    • Reply
      Milan 1 week ago

      You are absolutely right. Also I would like to point out , that for 750 k you can buy only uninhibited house and you need extra 75 k for the renovation to be able to live there

      • Reply
        Functioning Brain 1 week ago

        I literally never ever comment on this blog, or any blog but this was so mindbogglingly stupid and misleading I couldn’t bite my tongue. It pretty much asserts that 49% of the population has obtained a level of education allowing them to either have 1 income of 85K or two of $42,500 (in a job market that eliminating secure salaries work at a neck-breaking pace and migrating to a spotty contract part-time model) and that in obtaining the education they amassed NO DEBT then somehow managed to live and save 150K of their taxed to the brains salaries in one of the most expensive cities in the world where I just checked and basement 1 bedroom apartments appear to be renting for $1800-2K a month. In a logical world that is not built on holding up a sick inflated real-estate mess these people clearing 60K can afford a property that is 5 times their net….so 300K NOT 750K, to afford 750K you would need a combined net income of 150K or a gross of like 230K to not live in fear and suffocating debt…so 49% of the population makes 230K and has $150K laying about…and don’t forget your own important add on that for 750K you are getting a turd bucket that needs 100K of renos to be up to code. So now 49% of Toronto is debt free has 250K laying about and makes a combined gross income of $230K despite diminished salaried work and a stagnant salaried market…this article was MORONIC!

    • Reply
      Functioning Brain 1 week ago

      I am SHOCKED a real estate agent would forward assert this stupidity for the sake of personal gain at the helm of an obviously sinking ship…NOT!

  • Reply
    Milan 1 week ago

    Mr. Wong is providing information from 2015 in effort to brainwash us. If you want to know the real truth about Toronto real estate market I advise you to follow information originated from outside of Canada like this one:

    http://www.huffingtonpost.ca/2017/09/28/toronto-has-world-s-highest-risk-of-a-housing-bubble-burst-ubs_a_23226236/

    • Reply
      Functioning Brain 1 week ago

      Mr. Wong would be HILARIOUS if so many people weren’t at the precipice of losing everything and if he weren’t trying to promote more going in the same direction…as it stands he is irresponsible!

  • Reply
    MH 1 week ago

    The author has absolutely no idea what affordability means. Using this logic a person can afford to waste 100K in casino as long as he/she can scrap this amount by emptying RRSP and maxing out credit cards. As pointed above, both the math and the logic of the article are very misleading. Given how many people are taking upon themselves unsustainable amounts of debt these days, I would expect better from Better Dwelling.

    If a friend of yours who makes 85K a year comes to you and says: “Hey, I am thinking about buying this 750K house, do you think it’s a good idea?” Will your answer be: “It drives me a little crazy when some people say that you can’t afford it. Of course it’s a good idea, go for it.”?

    But the headline is a clicker…

    • Reply
      Functioning Brain 1 week ago

      I like anyone who has a functioning brain would tell them to hold their socks and wait for the next 5 interest rate hikes, for the new stress test for the over 20% down crowd and for the looney to finish gaining steam (2020) and to buy that 750K house for 420K ( 25K/5% down 25 year mortgage) with what will end up 7% interest rate and thank GOD they didn’t listen to propaganda like this and lose their shirt and then sit back and wait for the next bubble in 20 year sell it and laugh into retirement! But if I were a real estate agent, or the real estate industry I would tell them to BUY RIGHT NOW CAUSE THIS IS NOT A BUBBLE AND THEY CAN AFFORD IT AND INTEREST RATES ARE LOW AND PRICES WILL GO UP UP UP FOREVER and would direct them to a shady second mortgage provider to the get the wheels of their inevitable demise turning…then I would sit back count my money throw my head back and laugh wildly MUHAHAHAHAHAHAHAHAHAHA!

  • Reply
    Totally Nuts 1 week ago

    A family making $85k doesn’t have a hope of surviving while paying off the mortgage on a $750k house. Even if they could somehow get a 20% down payment going, which Functioning Brain demonstrates is basically impossible, they would be putting $2900 towards mortgage, $250-350 towards property tax, on average $600 for maintenance/upkeep (1% of property value). After tax income would be $4800, so they have $1000/month for groceries, utilities, cell phone bills, retirement savings, vacations, clothing, etc. They would be house poor for the rest of their lives.

    Unfortunately, at current sale prices even a 2BD condo is going to cost them not much less than $750k. A 3BD is out of range for them. So yep, don’t try to have a family if you’re an average income earner. Good population control technique I guess…

    • Reply
      Functioning Brain 1 week ago

      Right??? and this is the kind of crap that has been expanding this bubble by convincing people they have the ability to do things THAT THEY SHOULDN’T DO. This bubble has yet to burst it has slowly started but it has a far way to go. The looney is going up (their goes our export market), the job market is shifting to contract and piece work (no one will have salaries eventually), the government is coming after small business owners (the majority of the current work force is employed by them and in the future the majority of contract workers will be them) we have a mounting deficit (thanks TURD-O) taxes are going up, that cool shit Wynn did to our energy bills….interest rates are rising at least another 5 times and are currently kissing 4%…so should land around 6.5-8% by 2020….and the new stress test is coming for the put down 20% crew eliminating 25% of their access…ALL ROADS WILL CONVERGE for one the greatest economic depressions Canada has ever seen and every single person who read crap like this and said “cool I can buy a house that is inflated 50% in value and be A-OK, heck maybe even make some cash dolla off that sucker IS GOING TO BE DESTROYED financially, but who cares right? Lets just line our own pockets….this is sick!

  • Reply
    Mike 5 days ago

    The entire premise of the article is flawed. An 85k income cannot afford anything close to a 750K home by any metric, and they would never get approved for it, even with 20% down.

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