The Canadian Property Bubble Reached The Point Where Few People Can Actually Buy

Canada’s property bubble is reaching the point where few people in the country can buy. Home price growth is still surging across the country, but sales are falling. The odd combination made us curious how many households can still afford to buy. 

To the surprise of no Millennials, very few people can afford to buy anywhere across the country. We looked at the National Bank of Canada (NBC) affordability index for Q1 2021. Using their minimum income to carry a mortgage, we found less than a third of households can afford a home at these prices.

Only A Third of Canadians Could Afford To Buy Any Type of Home

Less than a third could afford to buy a home across Canada. A composite home across Canada requires at least an annual household income of $130,921. Fewer than 28.9% of households make enough to clear that barrier.

We say fewer because so few households make above $100,000, Canada groups them in large cohorts. From $100,000 to $150,000 is one cohort, even though a household at the top makes 50% more than the bottom. $150,000 and over is another cohort. It used to be a small percentage of households, but now it’s what you need to buy a home.

The majority of those buyers could only afford a condo apartment across Canada. The minimum household income to carry the mortgage on a condo apartment is $90,570 per year. About 33% of households make a sufficient income to carry those payments.

Non-condo dwellings, which include townhomes and semi-detached units, are more expensive. The minimum for a mortgage jumps to $164,014 in annual income. Only 14.7% of households make above $150,000 per year, so it’s less than that.  Remember, this is across Canada. It’s not just notoriously expensive places like Toronto or Vancouver.

Less Than 15% of Canadians Could Buy In Toronto

Thinking of moving to Toronto? Well, the minimum household income to carry the mortgage on a typical home is $171,771. Fewer than 14.7% of the country could afford a home. 

Maybe you can squeeze into a condo apartment, where the minimum income is $125,202. Fewer than 28.9% of households could afford the cheapest segment of housing.

Non-condo homes require a minimum of $183,594 in annual household income. That would leave fewer than 14.7% of households able to pay that bill. Remember, the cohort is any household that makes over $150,000. One would assume 22% above the entry point would reduce quite a few people in that category.

Only The Top of The Income Distribution Can Afford Vancouver

Vancouver… uh… is interesting. A typical home requires $192,822 in annual income to carry the mortgage. Since 14.7% of the country makes $150,000 or more in annual household income, it’s less than that.

Condos are a little more affordable, requiring $128,364 in annual household income. Fewer than 28.9% of the population can afford to carry the mortgage on these units.

You’re going to have to be a high roller coming straight from River Rock to afford a non-condo. The minimum income to carry a mortgage in this segment is $237,201 per year. Considering the entry point to Canada’s 1% is $244,800, it’s safe to assume only a small portion of the 14.7% of people that make more than $150,000 per year, make enough.

Canada faces a very interesting demographic situation in the near future. Consider this. Only a third of households can afford to buy a house across the country. Over two-thirds of households already own a home. Many of those that can afford a home, are older households that already own.

If you entertain the thought of home prices continuing to rise, how does liquidity work? If a good portion that can afford a home already owns one, even less are looking to buy. About 3% of households bought a home last year. You’re going to need astronomical income growth to catch up if prices don’t fall.

That kind of household income growth would trickle into significant inflation. Ironically, that would likely crush many of the homeowners that couldn’t afford to buy today, even more than home prices falling.

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  • Nassim 3 years ago

    Then there are people like my household, where you can buy but do you really see yourself living in a city where the only people that can afford to work at restaurants and cafes live with their parents, so they’ll all eventually shutter?

    • Whiskey Foxtrot 3 years ago

      Vancouver has doctors becoming real estate agents. You know how insane that demographic screw up is?

      • Doomcouver 3 years ago

        I think people are going have a lot of crazy “gold rush” type stories like that to tell their kids in the future. The kids probably won’t be able to believe them. I wish I couldn’t believe them…..

  • Jay 3 years ago

    Seriously, I thought I escaped Toronto madness by moving to Kingston. Now homes on my street are 40% higher than last year, and everyone thinks they’re rich and acts snobby, even though they couldn’t afford to buy their own house now.

    • Tom Wolfe 3 years ago

      That’s funny. Next, riding the bus will become a strictly black-tie affair.

      • Axel McLion 3 years ago

        This analysis seems incorrect. A large amount of those 2/3 who have lower incomes than would be required to buy **with 5% down save no other savings**, likely have more saved $$$ in the bank (or get more from parents, or somewhere) which does allow them to afford to buy.

        • Charles Ponzi 3 years ago

          The majority of these markets don’t allow 5% down, because the prices are too high. They have scaled up requirements to prevent taxpayer losses, as they should.

      • Brian Slack 3 years ago

        Yes, this is all about classism. Get real people.

    • Canaduh 3 years ago

      For the data set, what do most of these new paper rich folks plan on doing or have already done? Are they purchasing more stuff (anything in particular? More Starbucks? New cars?), taking out loans (HELOCs etc), putting money in the stock market?, planning on moving (uprising? downsizing?), etc?

  • Little Birdie 3 years ago

    This is unsustainable when considering Canadians purchasing real estate. Unfortunately, that’s not the case due to investors, landlords, and money laundering. To say our government failed us / future generations when it comes to housing is an understatement. Seems like it’s at the point where either a) prices remain astronomical and out of reach for most, which will change the future landscape of our country or b) prices correct, although this could also cause undue hardship for Canadians depending on why / how they correct.

    • Doomcouver 3 years ago

      I’m of the strong belief that the bubble can’t stay inflated much longer, but hypothetically if the prices ramain this high in the medium to long-term, there’s going to be constantly increasing pressure on governments to do something drastic about it. Millenials are now the largest voting demographic in Canada and the trend of more and more disenfranchised young people reaching voting age is going to drastically change the shape future government policy. Wealth taxes, anti-speculation/investment taxes, aggressive social housing funding, these are all things we can expect and more if the market doesn’t normalize on its’ own.

      • Average Man 3 years ago

        Right? I mean, maybe the bulls are right and this is the new paradigm. Do they not think that that will then change Canadian society as a whole? Do they thing the new permanent renter class, well-educated with good jobs, people who a generation ago would have been middle or upper middle class, are just gonna sit there and let the market kick them in the face indefinitely?

  • Vinny 3 years ago

    How much do houses have to fall so that the 1/3 who can afford a home can buy the 2/3 of homes that will hit the market at some point? i.e. equilibrium.

  • Joe B 3 years ago

    I hope I’m wrong, but I don’t believe a crash will happen as too many parties are happily making money from this mess, including all levels of Government. Let’s be honest, what other sector is truly capable of driving economic prosperity in this country and paying off the historic Fed spending. For that reason alone we are likely to see a soft landing rather than a 2008-esque crash IMO.

    • Doomcouver 3 years ago

      Soft landing will never happen in Canada now. There’s too many irrational expectations of future price growth baked into these prices to support said soft landing. It’s a binary outcome, further inflation of the bubble, or violent correction.

      • Joe B 3 years ago

        So once interest rates gradually rise you don’t think pull-backs in pricing will occur? This is the most likely outcome IMO and what I think the Feds are banking on to slowly tame the market. They are reluctant to implement any strict rules to cause a sudden drop as that would would have its own consequences and also mean they would have to admit that years of inaction actually contributed to the problem in the first place. Politicians don’t do this

  • Pepp 3 years ago

    Well, that is not true.
    For example if a couple bought a 400k home 12 years ago. They sold that home for 800k 6 years later they made 400k plus all the equity they had in the old home. Now assume their mortgage was 300k. Now with the same monthly mortgage payment as the 300k. They can now afford 1.1 million home 6 years ago. Now if they sold their 1.1 million home at current market price of 2 million they can easily afford a 2.5 home. Or they can buy 2 1 million homes. Thats all from buying that 400k house.

    This is like playing monopoly when everyone has been playing for decades.
    We need to tax people with multiple properties. People can still afford houses now because many won the housing lottery before.

    • Tom Wolfe 3 years ago

      It’s great to have ridden the rocket. But anyone who didn’t – ie most millennials – are SOL. Parents have to share their rocket-ride-benefit with their kids.

      Next, parents will end up sharing their debt with their kids.

      It’s a whole new ball game, looks a lot like the hunger games.

    • RWZM 3 years ago

      Yes but conservation of matter requires that new buyers buy the houses that those people are selling. The only way this can happen is if new buyers enter the market.

      While large immigration targets do (and are intended to) prop the market up, it’s not clear that they can sustain something this far out of proportion in the short term.

      • Emily 3 years ago

        Actually, new buyers are not necessary when people are investing in additional homes to rent out. I know a few home owners who buy a new house but don’t sell the old house. They rent it out. I laughed at them when they struggled with renters in 2020 but they have new renters back in and paying two mortgages again.

        Watch how many new cottagers buy condos for 1x/wk or biweekly downtown in person work days or to rent out. Keep one foot in the Toronto real estate market and the other in their home.

        • Doomcouver 3 years ago

          Landlords are accepting rental yields that are too low, because they justify the investment with capital appreciation. This capital appreciation is intrinsically non-sustainable, so when it stops, they’re not going to want to continue renting and losing money against inflation.

    • Marco Von Marcovich 3 years ago

      Yeah this is the main issue with the article, not taking into account that the majority of sales are current homeowners and so the mortgages are nowhere near those numbers.

      I also think we need to do more than just tax multiple properties, we need a way to turn housing back into a place you live and not something to invest or gamble on.

      • Terry 3 years ago

        That’s not really the problem with the article. A large number of people just don’t have the ability to understand after a buyer transfers their equity to a new home, the old home needs a buyer.

        They can only focus on the one buyer move. They don’t understand the old property’s equity is based on the introduction of a new buyer at that price level.

        • Emily 3 years ago

          You assume a new buyer.

          Example of someone I know: Bought 5 bedroom home in 2004 for $300k in Milton. 2020 worth $1.4 million. Downsize to 3 bedroom townhouse for $750k and ‘invest’ in condo for $650k to rent out.

          So many ‘investors’. I don’t know any new buyers but I know a lot of people buying additional homes or moving up to bigger homes. New buyers are disappearing.

          • Oops 3 years ago

            This would put a dent on the “foreign buyers” narrative and further strengthen the case for a tax on multiple properties to stop the leeching of productive capital and over-indebtedness of Canadians.

            Or, continue as is and further increase consumer debt levels to the point where it is uneconomical to do anything but build and bet on real estate.

            Choice is Canada’s to make.

  • Don Kwasny 3 years ago

    If they buy a home with a built-in basement apartment or convert the home they buy to an income property, that changes the numbers, doesn’t it. That is happening a lot as municipalities are allowing apartments in current single-family homes or even a 3rd new structure in the backyard to deal with the shortage of housing in some areas.

    • Tom Wolfe 3 years ago

      Shanty Towns.

      I guess a change of quality for our Canadian neighborhoods is inevitable, but that change won’t be an improvement. Increasing density often leads to decreasing quality of life. Is that what we want for Canada and our kids future?

      We are in very big trouble. Canada – as we knew it – is gone.

      • ThatsIT 3 years ago

        Yes, absolutely, look at Hong Kong”s density, locals are on top of each other literally. There is no quality of life which equates to pure insanity. That is why suicides are prevalent Throughout the territory and as such the masses are constantly bombarded with government sponsored messages on TV on suicide prevention.

  • don684 3 years ago

    If they buy a home with a built-in basement apartment or convert the home they buy to an income property, that changes the numbers, doesn’t it. That is happening a lot as municipalities are allowing apartments in current single-family homes or even a 3rd new structure in the backyard to deal with the shortage of housing in some areas.

    • Terry 3 years ago

      Then need a more expensive home than a typical one, because most of Canada doesn’t build homes with basements capable of serving as an apartment. In which case, only the 1% would be able to cover the purchase price.

      • Doomcouver 3 years ago

        Yeah “helper suites” are either already priced into the home when you buy it, or the construction costs of getting a legal suite put in will take decades for the rent to pay for it. Their only hope is an illegal suite, and that comes with its’ own potential problems.

  • Rahmat Khan 3 years ago

    That is right for people who have already own a house but what about the other people who are first time buyer how they can afford to buy a house in GTA.

  • Howard 3 years ago

    These unaffordability articles are all written as if everyone is a first-time buyer. Lots of buyers bring large down payments from the equity of their current homes toward the purchase of more expensive real estate. These would be the people affording the real-estate that is out of reach of the 1st time buyer.

    • Adam 3 years ago

      Unless you’re buying a second home with a new downpayment, then buying a new home is requires a first time buyer to flow into a new one.

      Existing homeowners are so out of touch, they don’t realize your home is only worth what you can sell it for. It’s also only worth what you can extract. The government saying it’s worth 10x what you paid for it to justify 10x the tax revenue, when most people will never actually be able to tap the wealth is actually the best grift.

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