Canada

Only Canada’s Top 5% of Households Could Qualify For A Mortgage On A Home: NBC

Great, you borrowed a downpayment from your parents. Only one problem — your income needs to be much higher to qualify for the mortgage. The majority of households would not qualify for a mortgage on a typical home, according to National Bank of Canada (NBC) data for Q1 2021. That’s for a typical home, if you exclude condos like you’re some sort of socialite, it’s much higher. For a non-condo, a household needs to be in the top 5% of the income distribution. We’re not just talking about Toronto or Vancouver either. That’s where the composite price of all major cities are at. Let’s dive into the data.

Canadians Need A Minimum Household Income of $130,000 To Qualify For A Mortgage

Canadian households need a huge boost in income if they want a mortgage. The minimum qualifying household income to carry the payments on a typical home reached $130,921 in Q1 2021. If you’re not into a condo apartment, bump that income to $164,014 for a non-condo, which includes townhomes. Remember, this isn’t Toronto or Vancouver — it’s an aggregate of major cities in the country.  

Canadian Minimum Income To Qualify For A Typical Home

The minimum income required to carry a mortgage on a typical home (composite) in Q1 2021, as well as non-condo housing. The median income is shown for context.
Source: NBC; Better Dwelling.

As you may have guessed, that’s just a little higher than the vast majority of Canadians can afford. NBC estimates the median household income is only $75,994 in the composite index cites. It would require a 72.28% increase to qualify for a typical home, and a 115.82% increase for a non-condo home. In other words, only the top 5% of Canadians can now afford the mortgage payments on a non-condo across Canada.

Toronto Home Buyers Need $172,000 In Household Income

Over in some place called “Toronto,” incomes need to be substantially higher. To qualify for a mortgage on a typical home, the minimum household income needed to be $171,771 in Q1 2021. For non-condo buyers, that number is a minimum of $183,594 in annual income. Not even all of the top 5% could clear that barrier. 

The median income estimates are a little higher than the urban aggregate, but even further away for a typical home. NBC estimates the median income at $86,433 in Q1 2021. The median household would need incomes to increase 98.73%. For those a little closer to the ground in a non-condo, they would need incomes to rise 112.41%. Sounds hard, but you’ve got 24 years to think about that while you save your minimum downpayment. 

Vancouver Home Buyers Need $192,822 In Household Income

They don’t joke about BC standing for “bring cash” because the province is known for affordability, but Vancouver is unreal. The minimum income to qualify for a typical home reached $192,822 in Q1 2021. For those looking at a non-condo, they’ll need to bring in a minimum of $237,201 in household income. Yes, this is more than double the median income for households in the city.

Yeah, the median income across Greater Vancouver isn’t even close to being able to attain a mortgage. NBC estimates it was just $85,135 in Q1 2021. The median household needs their income to rise 126.49% to hit the minimum qualification for a typical mortgage. If they want a non-condo, it would need to rise 178.62% for the minimum. Since it also takes 33 years for a downpayment, working on a time machine to go back to 1980 and buy a home may be a more reasonable option for many. 

Montreal Home Buyers Need $87,200 In Household Income

Montreal real estate used to be known for its affordability, but not if you’re earning a local income these days. The minimum qualifying income for a mortgage on a typical home reached $87,202 in Q1 2021. For a non-condo, it’s $94,760 for the minimum. That may not seem outrageous in contrast to national numbers, but it’s still out of reach for local incomes. 

A household earning the median income would need their incomes to rise more than a quarter to qualify. The median income is estimated to be $69,563 in Q1 2021. The median household needs their income to climb 25.36% to qualify for a mortgage on a typical home in the region. For a non-condo, they need a 36.22% increase in income. It may sound reasonable in contrast to the previous regions, but it is still far out of reach for locals. That’s how out of whack Canada’s real estate prices are these days.

Hamilton Home Buyers Need $145,000 In Household Income

Hamilton real estate may be a small market, but it’s getting some international attention for its recent price climbs. The minimum qualifying income for a typical home reached $144,574 in Q1 2021. For a non-condo, it’s $153,693 for the minimum. As is the theme, this is much higher than local incomes can afford.

Surprisingly Hamilton has one of the highest median incomes in the composite, but still far from the minimum needed. NBC estimates the median household income is $89,413 in Q1 2021. This means a median household needs their income to rise 61.69% for a typical home, and 71.89% for a non-condo. Considering it’s such a large gap, the extra few points for a non-condo seems almost trivial. 

Lowering mortgage rates while prices were rising, allowed home prices to catapult higher. The minimum qualifying income is now so high, the vast majority of homeowners wouldn’t be able to ever buy their own home. Since mortgage rates will only go higher from here, there’s only two possibilities.

Home prices will either need to fall, or incomes will need to surge higher. The latter option is near impossible, considering the amount incomes need to rise. Although this isn’t an immediate problem, considering it takes decades to save the down payment.

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14 Comments

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  • George 1 month ago

    Don’t worry. The government will start buying half of your home. Anything to keep existing homeowners rich.

    • Trader Jim 1 month ago

      I’m guessing this is a joke, but that’s what they were doing to push prices up. The “shared equity program.” The government made a buttload speculating too.

      • Dale 1 month ago

        No joke, Vancouver is the of the million dollar tear down. Assume 1.5 million for a livable single family home. I live here, it’s outrageous.

  • Mortgage Guy 1 month ago

    What percent of households bought a home over the past 2 years? 2%? This is going to be fun.

    • Ethan Wu 1 month ago

      This is the pent up demand argument. Is the demographic that just bought a bunch of homes the same demographic that is saving a ton? After record car sales, does it matter if they have savings — they won’t need another car for a while?

    • Canaduh 1 month ago

      Anecdotally it’s more along the lines of [1-2%] = 98%.

      The “everyone is sitting on stockpiles of cash” argument is just not driven by the data. A back of the napkin calculation of the actual per capita savings is roughly a few thousand. BoC reports about ~$5800 per person (See COVID-19, Savings and Household Spending, Bank of Canada.) Of course in reality this is asymmetrically distributed.

      Incomes have gone nowhere (and in some cases, down), while folks are out buying a lot of take-out, ordering from Amazon on a regular basis, and reno’ing their properties “as an investment” on HELOCs, LOCs, or the savings increase because they believe their unrealized gains are locked in and forever supported by the government. Go for a walk or a drive, does this lockdown truly look any different than years gone by less multiple businesses now permanently closed and an incredible amount of real estate activity?

      If there is a huge re-opening, it’s largely already priced-in and it will be sector specific. The same BoC report is estimating $500 per person in Q4 2021. At this point that will buy you, what, a few 2x4s from Home Depot?

      Most Canadians are -not- richer than they think.

  • Bruno 1 month ago

    Millennials make more than people that own homes, but can’t afford a home because they’re worth so much. Homeowners are saying tax the rich to pay for their property tax subsidies, who happen to be high income millennials that can’t buy a home.

    Everyone is the rich, and no one is happy except for the government who’s going to raid both of them for tax dollars to give to their friends.

    • Christopher Barclay 1 month ago

      This is probably one of the most important points.

      Government spending is the reason rates need to be this low. Paying dividends through secret subsidy programs they won’t even be transparent about it their highest priority.

  • a. caldwell 1 month ago

    Total Failure, is just one way to describe an economy based on Real Estate (at double it’s normal share of G.D.P.), that has attracted – in part – international players scoring double digit and largely untaxed returns on their ‘Investments’, whilst laughing at the suckers – those being the regular working folk of the country that call Canada home and can no longer afford the dirt they stand on.

    Our leadership is lost – haven’t a clue, with their only focus seemingly re-election achieved thru smoke and mirrors policies. (a platform for election based on pot legalization , that will get the vote, the rest will come from good looks!- what nonsense)

    Punish the foreign capital, we don’t need it. Living and working here should allow for primary residence home purchases to be untaxed, with outsiders paying 50, even 100% purchase taxes, that would be a start. Temper prices further – not with huge down payments that are too hard for Canadians to put together, but with shorter mandated amortization periods of no more than 20 years. Interest rates may be market based, but rules such as I have suggested are within control of our legislators.

    And yes, hard rule changes would cause a slow down to the concrete hi-rise construction boom, and a market correction with wounded portfolios, but for Canadians wishing to rejoin or re-create the middle-class I have to think it would be a game changer with huge long-run rewards. Real Estate and Construction related G.D.P. monies could be redirected to goods manufacture, R &D, the resource sector, tourism, all things that underpin a better, more vibrant world competitive economy.

    Affordable housing – both regular market as well as the ever needed social forms are achievable, we just have to elect a government that genuinely wants to make it a priority.

  • MA 1 month ago

    Interesting article, you used the word “typical home” many times but didn’t actually define how much a “typical home” costs. Sounds like a biased use of statistics to proved a point.

    • Jason Chau 1 month ago

      That’s not a bias. That’s you not reading the weighted index home price article from a few days ago.

      The news can’t do a full background analysis every day, because you’re too lazy to look up a previous point they made.

    • GTA Landlord 1 month ago

      Yes, they’re in the pocket of big data. It’s a conspiracy between the banks and Better Dwelling, so they both stop making money selling products to the real estate industry.

      How did you figure it out? Is this the kind of high-quality education I can learn by becoming a Realtor?

  • JW 1 month ago

    No wonder I have heard stories that people use photoshop to make false income statements. We are living in an interesting time – be creative and fearless!

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