Signs that the Canadian housing market may be quiet are coming too late for many potential homebuyers, as their ability to save to buy a home has diminished due to inflation and rising interest rates limiting their ability to catch up with the high home prices that have characterized the COVID-19 pandemic.
The first quarter of 2022 saw the worst decline in housing affordability nationwide in 27 years, according to a report Wednesday from the National Bank of Canada, with rising mortgage rates linked as a major factor marginalizing potential buyers.
For a series of global news sticker shock posters helping Canadians beat rampant inflation, we spoke to experts and homebuyers angry at the eroding affordability of housing in the country and broke down how some can make the purchase successful.
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Shelter, or housing-related costs, was one of the biggest factors driving the annual rate of inflation to 6.8 percent last month, according to Statistics Canada.
Although some markets like Toronto saw prices drop from month to month in April, prices in the GTA were still up more than 15 percent year over year.
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Tembika Pratt, a 30-year-old management consultant who is looking to buy a home with her partner in town, says it’s “heartbreaking” to see their dream of owning a home so elusive.
“I don’t really know how people of my generation or younger are going to be able to buy something just to get into the market,” Global News said.
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Pratt told Global News that she and her partner have been saving enough to buy a home for the past two years, something she’s been dreaming of for more than a decade.
She made a wise plan about the pandemic: She worked toward a higher-paying job that now earns nearly $100,000, well above the median annual income of $51,500 a Toronto resident earned in his age in 2020, according to For the latest StatCan data.
Together with her partner, the two have a combined income of around $200,000.
But the National Bank’s Affordability Monitor shows that the annual income needed to afford an average or “representative” non-residential home in Toronto rose to $228,100 in the first quarter of the year.
Pratt says she was frustrated to find out how little her hard work had been to bring in a six-figure salary the couple could earn in the Toronto hot market.
“You might think this would open many doors for you, when in reality it just isn’t possible,” she says.
The couple are willing to adjust expectations and are looking at home properties in the $700,000 to $800,000 range around the outer limits of GTA, but there are also high prices.
The Toronto Regional Real Estate Board (TRREB) said earlier this month that prices for cottages in so-called 905, outside downtown, averaged $997,416 in April.
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The inability of younger Canadians to break into the market is a familiar story for Paul Kershaw, a professor at the University of British Columbia and founder of Generation Squeeze, who researches the erosion of housing affordability across the country.
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He says someone who bought a home in the 1970s only needed five years of full-time work under their belt to buy a home in Canada, while that number has risen to 17 years of business today. It takes 22-27 years in markets like Ontario and British Columbia
“The amount of work that is required today to try and break into home ownership has increased too dramatically and in a soul-crushing way for younger residents or newcomers of any age,” he says.
What goes into buying a home?
Leah Zlatkin, mortgage broker and expert with lowrates.ca, says the salary range and price range that Pratt and her partner have in mind are a “great starting point” if they can find a home that fits their needs.
She says an individual or couple can typically qualify for mortgages equal to four or five times their income, which could put Pratt and her partner in a reasonable range between $800,000 and $1,000,000, depending on their obligations and whether they take a fixed or variable rate mortgage.
However, saving for the down payment may be the tough part in today’s market.
The minimum down payment equals five percent of the home’s purchase price for the first $500,000, 10 percent of $499,999, and increases to 20 percent above $1 million.
A sample home priced at $750,000 will have a minimum down payment of 6.67 percent, or approximately $50,000.
Reaching the 20 percent down payment limit can also help the buyer avoid mortgage insurance payments from the Canadian Mortgage and Housing Corporation (CMHC), which are usually linked to the monthly cost of the mortgage.
“So you won’t feel it up front, but you will feel it for the life of your mortgage,” Zlatkin says.
She points out that the decision to try to save up to the 20 percent mark or get the minimum down payment and higher monthly fees comes down to how strong you can save.
The longer you take to save for the down payment, the more home prices can go up, increasing the total amount you have to pay.
“It’s like you’re constantly chasing a slowly rolling car. You have to really be able to save that money really hard in order to catch that car,” Zlatkin says.
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However, the down payment and monthly mortgage costs aren’t the only things you need in the buying process.
Land transfer taxes are paid at a cost of $11,445 at the municipal and regional levels in Toronto, for example, although rebates are available to first-time buyers in every case.
There are legal fees and property insurance that come with closing a purchase that you have to account for, as well as annual property taxes – something that most buyers coming in from a rental haven’t had to include in their budgets previously.
“So you want to be really careful and you want to do your research to understand what those initial costs might be for someone looking to buy that first home,” Zlatkin says.
Housing is a “generational injustice”
“Housing inflation” is tolerated differently, for example, than inflation on the price of gasoline because it is Canadian homeowners who generate wealth when real estate prices rise, unlike faceless companies, Kershaw says.
While baby-boomers were happy to see their homes rise in value – and even lend some of that equity to their children to break into the same market – Kershaw says we need a societal shift to show the impact on younger demographics when we’re only expecting home prices to rise.
“We wanted housing to be this great grower of our wealth, and we had to stop if we thought housing should provide affordability, because you can’t have both,” he says.
Kershaw says he was relieved to hear Finance Minister Chrystia Freeland recently refer to the housing affordability gap as an “intergenerational injustice,” and he hopes it is the start of a broader policy discussion that could see an end to the uncontrolled growth in the housing market that is leaving the youngest Canadians marginalized. .
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Pratt acknowledges that this understanding of what home represents for adults’ financial stability is part of what draws her to the ideal of home ownership.
“It’s something that will live after you and can make a fortune for generations,” she says.
“My parents own their home and almost everyone around me owns a home. So it was taken for granted that this is the next step as you get older.”
She says Pratt and her partner are willing to be patient in trying to avoid hopping into the house and ending up with the “house poor”. The couple, who are also saving up for this summer’s wedding, hope to hit the market within the next two to five years.
“We’ll go at our own pace,” she says. “We’ll own at some point, but we’re not going to drain our savings just to get into the market.”
— with files from Anne Gaviola of Global News
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