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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