Real Estate Cheat Sheet: how affordable are homes in Toronto?

Real Estate Cheat Sheet: how affordable are homes in Toronto?

(Image: JasonParis)

Two of Canada’s biggest banks released reports this week examining the affordability of homes across the country, and Toronto didn’t come out looking good. The city’s one of the least affordable in the country, second only to Vancouver (which is one of the priciest markets in the world). We break down the numbers below.

• Real estate watchers gauge affordability by the proportion of pre-tax family income required to pay the mortgage and other related costs like home insurance, utilities and property taxes. Anything over 39 per cent is considered unaffordable. In Toronto, mortgage payments on the average single-family home account for 43 per cent of household income alone, according to a recent BMO report. That number is closer to 50 per cent when other costs are included, which makes the market vulnerable to a correction if interest rates spike or incomes fall.

• An RBC Economics report further breaks down the numbers by type of home. At $545,6000, the average detached bungalow in Toronto devoured 52.8 per cent of median income in the fourth quarter of 2012. That was slightly (0.4 percentage points) better than the quarter before, and RBC attributed the minor improvement in affordability to slower market activity in the second half of 2012.

• Two-storey homes are the most unaffordable of all. Housing costs for a standard two-storey comprise over 62 per cent of household income with an average price of $640,500, according to RBC. In other words, it takes an annual income of $131,300 to qualify for a benchmark mortgage.

• Condos are still reasonably affordable. BMO says housing costs on condos account for just 31 per cent of median income. RBC put that number at 33.1 per cent.

• Housing Trends and Affordability: February 2013 [RBC Economics]
Canadian Housing Affordability: Location Matters [BMO Capital Markets] 
Home costs take slightly smaller bite of household budget, but Vancouver still least affordable market [Financial Post]
• Fears of a Canadian housing bubble unfounded: BMO report [Toronto Star]
Low mortgage rates muster slight boost in housing market affordability [Globe and Mail]