You need to make more money despite declines in prices for you to afford a home
Potential buyers needed a higher income to afford homes in September even as prices fell across Canada, according to a new report from Ratehub.ca.
High interest rates and record-breaking mortgage stress test levels mean perspective homeowners needed to earn more money to qualify for a mortgage, said James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender.
“It’s never taken more income to qualify for a dollar of mortgage,” he said.
The report, which looked at data in 10 Canadian cities, shows the average cost of a home in Toronto fell $14,400 between August and September to $1,127,000. Meanwhile, the annual income required to qualify for a mortgage rose to $235,100, an increase of $1,800 from the previous month.
Vancouver and Victoria, which only saw home prices decline by $5,100 and $2,600 respectively, saw the steepest increases in the income needed to secure a mortgage to $250,000 and $187,900.
In all 10 cities, home prices declined while the income required to buy increased.
“All of those cities (are) still less affordable, even though the values dropped, which is a bit counterintuitive, but it just shows you how important and significant these rate hikes are,” said Laird.
The analysis released by Ratehub is based on monthly real estate data from the Canadian Real Estate Association. Ratehub’s team based their calculations on a 20 per cent down payment and a 25-year mortgage, with an average five-year fixed rate from the five big banks.
Cherise Burda, the executive director of city building at Toronto Metropolitan University, says the burden of high mortgage rates isn’t just felt by homeowners and potential buyers, but also on those navigating the rental market.
“Landlords are paying higher interest rates and they are downloading those extra costs onto renters, so rents are going up,” she said. “But also, there are more and more renters in the market because a lot of people who wanted to buy a home can’t afford it because of the interest rate. So there’s a lot of competition for rentals, which is also driving up costs.”
The income level needed to attain ownership has been on the rise over the past year — and Laird says that’s unlikely to change soon.
“Unless or until home values change significantly, or until rates drop significantly, then home ownership is going to remain very difficult for first-time homebuyers,” said Laird.
This article was reported by The Star
