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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