How can Canadians cope with high housing prices?Jul 28, 2016
Housing prices keep rising in Toronto and Vancouver, but these are no longer the lone cities in Canada where homes are too expensive. According to the Canada Mortgage and Housing Corporation (CMHC), houses in Hamilton, Saskatoon and Quebec City are also “strongly overvalued,” which means that prices are higher than the population, employment and income levels would normally justify.
For instance, if you live in Hamilton, a city of 520,000 with a median income of $33,690, you can now expect to pay an average home price of $451,000. This may be half the cost of housing in Toronto, but it’s still over 13 times the average Hamiltonian’s earnings. By comparison, Torontonians were paying 6.7 times their income for housing in January, although prices have risen since then.
Will a foreign buyer tax bring down housing costs?
In Vancouver, Canada’s most expensive housing market, a foreign buyers’ tax was introduced that would charge an additional 15 per cent of the purchase price to any non-Canadian homebuyers. This measure in itself won’t lower housing prices in the Vancouver area—it actually makes them more expensive for certain buyers. But the intent is that the tax will help reduce competition in the local housing market, which would hopefully slow the meteoric rise in Vancouver home prices.
The Ontario government has said it will keep a close eye on Vancouver’s new tax to consider whether to follow suit in Toronto. However, the government is also concerned that implementing a tax in just one city could further drive up prices in other Ontario markets—with Hamilton already being a case in point.
The larger your down payment, the smaller your mortgage
In the U.S., where housing prices are still lower in some cities than before the 2008 market crash, 63 per cent of millennials are planning to buy a home in the next two years. However, Americans recognize that saving for a down payment is a challenge, with nearly three-quarters calling it their “most significant hurdle” to homeownership. What’s more, 35 per cent of U.S. millennials say that they’re making a down payment of less than 20 per cent on their new home.
In Canada, 20 per cent is a significant threshold, as any down payment below that level requires you to pay a mortgage insurance premium to the CMHC. There’s also the fact that making a larger down payment allows you to take out a smaller, more affordable mortgage, which can be easier to pay down in today’s low-interest-rate environment.
We understand that owning a home is a major life milestone for many Canadians, and news of constantly rising prices can convince some to “buy now before it’s too late.” However, as with any major purchase, it’s important to save and budget for buying a home to avoid taking on an unmanageable amount of debt. Even if housing prices continue to rise, it could be more costly to buy now with a five per cent down payment than if you’re able to save up and pay 20 per cent down two years from now.
Is saving for a down payment included in your monthly budget? Join the conversation on Twitter using the hashtags #BDOdebtrelief #LetsTalkDebt