How would it make you feel if we were to tell you that in Toronto right now you need to make $160,000 to be able to afford a home? Would you feel even antsier if we mentioned that in Regina you just need to make $70,000? Although this probably won’t get you searching Indeed for jobs in Regina, or packing your bags, it certainly gives most Torontonians intent on buying a home pause for thought. It’s frustrating knowing that a small percentage of people can experience owning a home in the heart of our beautiful city. In fact, it means that in most cases you’ll need to be what is known as a 10 percenter. Here’s what it means to be a 10 percenter in the TO real estate market right now and how that might affect the common Joe or Joanne’s ability to find a house.
Can’t Afford a Downtown Home Blues
According to RateSupermarket.ca housing prices in major cities have a lot of would-be homeowners singing the blues. If you want to live in Vancouver, Montreal or good old TO, you need to be in the top income bracket to do so. For many this means the dream of owning a home seems to be nothing more than that – a dream. Looking at pricing and income, they found Toronto homes reaching well over $873,100 means you need to be a member of the exclusive 10 percenter gang making over $160,000 a year. They assumed a 3.25% five-year fixed mortgage rate, amortized over 25 years and a down payment of 20%. To add a little more colour they also had the buyer $10,000 in debt with monthly car lease payments of $300. If it makes you feel any better, in Vancouver with houses going for over $1,441,000, home buyers need to be a member of an even more exclusive group, the one percenters making over $240,000.+620
The Call of the Suburbs
More than ever, the rising home prices have many first-time buyers looking at greener pastures, namely the suburbs. Some people are calling out changes to the mortgage stress test as a contributor to the need for relocation. Buyers need to qualify not just for current rates, but also have income that allows them to make their payments if the rates were to increase, or they saw a reduction in their income. As a result, it’s the 10 percenters who are qualifying. With prices in the suburbs becoming more settled after a boost of energy infused by the pandemic exodus last year, more people have set their sights on relocation in earnest. For example, the RateSupermarket.ca study found that just 70 km away in Hamilton, you can find a lovely home for $630,000 with an income of $120,000. You might be surprised at what you can find in less obvious areas packed with possibilities and a growing number of big city amenities.
Adjust Your Expectations
If you want to get in on the TO real estate market, you just need to adjust your expectations a little. Regardless of the market we have some basic first-time buyer tips we offer our clients. The first one is to apply for mortgage pre-approval. This will provide you with one of two scenarios: 1) Rejection or 2) A realistic number for the mortgage the bank feels you can afford. In the first scenario you can get back to saving and improving your credit, and try again next year. In the second scenario, based on the approved mortgage you can adjust your expectations and look at neighbourhoods or styles of homes you might not have considered.
Consider a New Strategy
We say don’t get too discouraged. As long as you have a realistic view of your budget and what you can spend you don’t have to completely right off home ownership in TO. For example, there are plenty of lovely condos in highly desirable areas, close to all the amenities you could want, and with spectacular views waiting to be scooped up by first-time home buyers. There are also still some rare, but exciting house finds in up and coming areas you might not have considered. And have you seen the show “Five Bedrooms”? It follows a fictional group of people who buy a five bedroom home together. Although fictional, it is not farfetched and speaks to a growing trend of cohabitation. Many first-time buyers are going in together on multi-family homes, or simply sharing their home with a group of friends/family members looking for an affordable housing option. While it might not be ideal for everyone, it can prove to be a good way to invest in real estate you otherwise couldn’t afford.
If housing and the mortgage stress test has you singing the blues, we’re here to help. We offer some of the best real estate agents Toronto offers ready to discuss your options and help you pay the best possible price for your dream home. Give us a call at 416.291.7372 or email us at hello@christinecowern.com. We’d love to work with you!
