Home affordability improves in Toronto

Mar 16, 2007 – Toronto Star Article

Tony Wong
business reporter

<>At the end of 2006, it took just under half of pre-tax income, or 48.8 per cent, to afford a standard two-storey home in Toronto. That compares to 50.4 per cent in the prior quarter, and represents two consecutive quarters of increasing affordability.

"This is a trend that should hold up moving into 2007 because we're still seeing good job growth, especially in January and February, and the Canadian economy is continuing to surprise economists on the upside," RBC assistant chief economist Derek Holt told the Toronto Star.

Holt said faster income growth in tight labour markets, moderating house price increases, a small decline in mortgage rates and lower utility bills all helped to make homes slightly more affordable in the fourth quarter.

Most financial institutions use 32 per cent of pre-tax household income to determine whether someone can afford a home.

The Canadian Real Estate Association also reported this week that existing home sales in February were the second highest on record. However, prices continue to moderate, with Toronto recording an average 4.2 per cent year-over-year price increase in all home categories.

Analysts are forecasting existing home prices will continue to rise, but only moderately in the 1.8 per cent to 5 per cent range this year.

According to RBC, a household income of $104,039 is now required to carry a standard 1,500-square-foot home in Toronto.

Condominiums remain an alternative for buyers priced out of the house market, where household income of $60,688 will qualify buyers.

It took 28.5 per cent of pre-tax income to carry a standard condominium (with inside area of 900 square feet) in the last quarter of 2006, compared with 29.5 per cent in the third quarter.

Vancouver remains the most expensive place to carry the costs of a home in Canada, with a required 73.5 per cent of $125,631 in pre-tax income needed. However, that's down slightly from the third quarter, when it took 74.9 per cent of income.

Toronto reached close to that peak in the housing bubble of 1990, when it took 72 per cent of pre-tax income to afford a home. The city also experienced both double-digit unemployment and interest rates at the time.

Meanwhile, the bank says the "stark east-west divide" in provincial housing markets appears to be softening.

Price growth is likely topping out in British Columbia, Alberta and Saskatchewan, said Holt.

Canada will also not be hugely impacted by the high-risk U.S. mortgage market, which is rattling stock markets south of the border, said the bank.

The U.S. Mortgage Bankers Association reported this week that foreclosures surged to an all-time high in the last quarter of 2006.

The sub-prime market is tiny, and "Canada does not face the same risks," said Holt.

RENTING CONDOS

The new Residential Tenancies Act came into existence on January 31 st of this year. It was supposed to provide more protection for tenants - that's what the Liberals wanted. In fact it has only served to confuse the market and has made it more difficult for tenants to find rentals.

Why? Now that it is more difficult to evict tenants and it takes longer to get them out (all the while the landlord is losing rent), landlords are becoming a lot more 'picky' about accepting tenants in the first place. With a vacancy factor of less than 1% for condos (apartments are over 3%), the market is in their favour. Landlords are not obliged to give a reason for a decline - just not acceptable. If a landlord thinks a tenant may prove difficult, then they won't rent to them in the first place.

Also rent deposits of more than the last month are illegal. Tenants with bad credit or who have no assets or a job in Canada often gave extra months rent. Now landlords are either refusing these tenants or are asking for a rental guarantor. Good luck in finding someone who wants to give a guaranty. If you are a parent with university students who want to live off campus, be prepared to act as a Guarantor!!