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Which Canadian Real Estate Markets Can You Afford? Not Many If You’re Middle Class

You did it! Your household earns the median income for Canada, and you convinced your boss to work from home. Now you just need to find a home you can afford, in the second largest country in the world. Easier said than done. Don’t worry, we got you. We hope you like small and remote cities or rural towns, because that’s all you can afford.

About Today’s Numbers

Today we’re looking at which cities you can afford to buy a home using the CREA composite benchmark price. We calculated the max mortgage for roughly the median household income ($100,000). We also assumed you have a 20% downpayment, either through savings or the Bank of Mom & Dad.

Households can use a smaller downpayment if they get a high ratio mortgage. However, the maximum you can afford typically shrinks since you have to finance the rest. High-ratio insured mortgages usually make sense when you have a lot of income and not a lot saved. If your income is being pushed to the limit already, the increased room only helps wealthy buyers.

Two quick notes on payments and household incomes. People using loan calculators often fail to enter property taxes or heating/energy. When they go to a mortgage agent, they ponder why they don’t qualify for as much as they did on the internet? Don’t be those people.

We used an industry standard for those numbers since we’re only doing a rough guideline. When you do this, you might see a higher or lower number, depending on expenses. Buying a condo means maintenance fees, which reduce your maximum loan further. If you’re buying right now, then run the actual numbers with a mortgage agent.

Second, let’s talk about household incomes. Depending on your circle, you might not really know what “normal” incomes are. Some people I encounter don’t understand how anyone makes less than $100k. Others think $100k incomes are unattainable unless you’re elite.

We used $100k for the income because it’s a round number that’s also close to the median household. Even with “surging” incomes due to job vacancies and inflation, Canada didn’t see a jump like the US. The average wage for labor requiring at least one technical skill is $54,100/year. Dual income households with skilled labor on average would make around $108,000/year in total income. They’re just higher than the median we used.

It’s also generous to assume both members of a household are also skilled labor. Some snooty folks might think, well — if you’re general labor, you should work harder. These people often don’t realize most of the value of high growth cities is created by lower income people. Cafes, restaurants, art galleries — anywhere with a public facing role. These are people who are on the lower end of the pay scale, and also a big part of why expensive cities are expensive in the first place.

Those that think big cities like Toronto have higher than usual incomes are mistaken. Despite what many assume, incomes are lower and shelter costs are higher. So, we’re sticking with $100k/year for the calculations.

Now onto the numbers!

A Typical Canadian Household Can’t Afford 69% of Markets. Niiice

What could you, a regular household earning the median income, afford in 2022? Not much. A benchmark home in 69% of markets in the CREA House Price Index (HPI), is now out of reach. Even Calgary has just slipped out of your reach. Sorry Toronto Millennials, we know that was your exit plan.

Households earning $100k in annual income can qualify to buy a home around $497,900. Once again, that assumes they have the 20% down payment ready, which is about $100k. That was the good news.

Which Real Estate Markets Can A Typical Household Afford Across Canada?

The price of a benchmark (a.k.a. a “typical”) home across Canada and the maximum budget a household earning $100k would qualify for, assuming they had a 20% downpayment.

The bad news is you can barely afford to live in a city like Sudbury (where a benchmark home costs $481,700) in April. Last month, the cities that came in just under your max budget included North Bay ($461,300) and Nova Scotia ($414,100). That’s Nova Scotia, not Halifax ($528,100). A quick browse around the province and it’s hard to find a place with high-speed internet at your price point.

Want To Buy In Toronto, Vancouver, or Even Hamilton? Uh…

Were you dreaming of living in cities like Toronto or Vancouver… or even Hamilton? Good luck, because you’ll be really hard pressed to find something within your budget. Home prices in Greater Vancouver now require a minimum annual income of $267,000 for a benchmark home. In Greater Toronto, you can get away with a more modest $263,300 household income. Over in Hamilton, the IMF’s most overvalued city in Canada, a household needs to earn $216,600 per year. Hamilton’s nice, but you’re pretty close to the average income in Monaco… and there are no income taxes in Monaco.

Canada Is Manufacturing A Housing Crisis, Despite Expert Warnings

No, Canada wasn’t always in such a wild situation. Housing affordability was stretched before 2020 in major cities like Toronto and Vancouver. It wasn’t until 2020 that prices began to inflate right across the country, right into rural towns. Work-from-home contributed to the disconnect, but the bigger issue is monetary policy.

The Bank of International Settlements (BIS), a central bank for central banks, recently dropped a warning on this. A bulletin for its members shows home prices soared across the world. This was a finding also repeated by Canadian banks weeks before. Local industry might be convinced every country with similar monetary policy ran out of land at the same time. However, the BIS isn’t sold on that narrative. Instead, the researchers conclude similar monetary policy reactions created the same environment. Easy money is responsible for “most” gains markets made.

They weren’t just explaining how spectacularly we screwed up, but providing a solution. By raising rates and lowering leverage, they see monetary policy rolling back gains in an orderly fashion. Higher rates and reduced leverage are the solution to a problem created by low rates and high leverage. What a novel concept.

Canada, world-renowned for its affordable housing, is going the other way. It has a number of plans to induce demand and raise leverage, maximizing credit growth. The Bank of Canada (BoC) warned they may not raise rates as high as they should to accommodate housing debt. At the same time, the Federal Government has plans to roll out demand stimulus and raise leverage. It’s almost like they’re consciously executing a plan to raise home prices.

Can an economy maintain such high home prices and still retain its youth? We’re about to find out. In the meantime, folks in a rush to buy a home — enjoy Sudbury.

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