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You’ve heard people say it: “how will my children ever afford to buy a home?” Nowadays, many parents are having to help their children purchase their first home and some even plan to leave their home to their child in their will! Is it really THAT hard to get into the market? There have been a lot of changes over the past 15 years. I remember in 2002, during a notable new home construction boom, it seemed like anyone and everyone was getting a mortgage. Mortgage rates were low with promotional rates being approximately 4.25% on a five year fixed rate and it was fairly easy to get into the market (new or resale) for under $200,000. It was during that time that I purchased my very first home with my sister. Our purchase carried a price tag of $225,000 and was a smaller detached, vinyl clad home.
Now, here we are at the beginning of 2018 with the average home price in the GTA to be approximately $776,000 (average of all home types combined). That is a giant leap! The Toronto Real Estate Board (TREB) keeps track of housing price growth through something called the Home Price Index (HPI). The Index started tracking in 2005 with a benchmark score of 100 as a baseline. As of December 2017, the HPI was sitting at a score of 244 for the GTA….Prices have increased 144% since 2005! To top that off, the mortgage industry has implemented various policies and additional qualifiers when applying for a mortgage. So if house prices have increased so much, who exactly is buying all these houses? How about who ISN’T?
In 2017, the average individual salary was 51,000/year (only a $10,000 increase from 2005). I decided to jump online to a mortgage calculator and find out what that gets me! After all, $51,000 seems like a pretty good income, doesn’t it? I used BMO’s mortgage affordability calculator. When I entered in an income of $51,000, here’s what I got;
This is assuming that I have NO monthly car loans or credit card payments AND that property tax is only $250 per month AND that I have 20% down! Adjust any of these factors and guess what? The amount you qualify for becomes even less!
Don’t get too discouraged though. Often, those high prices are limited to major urban centres. If you’re willing to live outside of these areas, there is potential to save a lot of money on your home purchase. Buyers are also starting to actively consider looking at homes that have a rental unit within them as a way to offset costs. There are a lot of options out there for you…you just might have to be a bit creative. In sum, make sure you have a great Realtor who is knowledgeable and thinks outside the box!