Can’t Afford to Buy in Toronto? Here are your Options

If you’ve been priced out of the market, you’re not alone. Toronto’s real estate values have skyrocketed year over year, and it’s reached a point where many of the top Canadian income earners can’t even afford an average priced home in the city. Some of you might be thinking that this is an exaggeration. Guess again.

As of February 2017, Canada’s real estate association, better known as CREA, reported an average home cost of $835, 000 in Toronto. This represents a 23.8% increase year over year, and contrasts with a $500,000 average across Canada. Ok, despite the alarming year over year increase and the distressingly high price compared to the rest of Canada, that’s not so bad that even the “rich” can’t afford an average priced home, right? Here’s the thing; that number includes Condos and Townhomes. When we look at strictly detached properties, that number shoots up to a whopping $1.57 million in Toronto’s 416 area code.

I bet I know what you’re thinking now too: “ok, buy in the suburbs!”. While that is sound logic, you’d better guess again. When we look at The Greater Toronto Areas (GTA) 905 area code, the price point remains unattainable at $1.11 million. So, when I say that many of the top Canadian income earners can’t even afford an average priced home in Toronto, I’m not blowing smoke. For example, a couple who earns an annual income of $250, 000 (which would put them close to the top 1%) would only be able to afford a maximum price of $987, 289. This is factoring in down payment requirements and  the rate at which a $250K earner would be taxed (a whopping 53.53%). This simply isn’t enough to afford an average detached home in Toronto, or anywhere else in the GTA. And when we look at the average price of a home including condos and townhomes, the story doesn’t get a whole lot better: to afford an $800, 000 home, one would need to earn an annual income of $143,342. When we look at the median family income in Toronto, according to the most recent reports from Statistics Canada, the number floats around $75,270 annually. So where does this leave most Torontonians? It means we’re looking at Condos or maybe a townhouse if we’re lucky. Even then, an overwhelmingly high number of us are priced out of the market all together.

Even so, the bidding wars have continued in Toronto. It’s yet to be determined what 2017 holds, and with new legislation in the works, we may start to see the market even itself out. One things for sure, these trends cannot continue, as sooner or later there will be nobody left in the market who can purchase. Everything evens out over time, but until then, you do have some options.

Buy Small

Clearly there are still plenty of people buying homes in the city. Otherwise the market wouldn’t be trending the way it has been. So, let’s not start to think it’s all grim yet! Many are in fact turning to Condos or townhomes, and the way the market has been going, they should see some strong equity within a few years. At that stage, they can sell off their property and upgrade to the detached that they want. If your finances allow for a smaller purchase, it may be worth considering.

Look Outside the Suburbs

It may not be ideal, but you have the option of relocating or taking on a commute. For example, about an hour drive West of the city, Hamilton-Burlington offers an average home price of $507,131. This is significantly lower than anything you’ll find in the GTA, and would save you money even when factoring in gas costs and wear and tear on your car. With plans for the city to expand West in any case, this is a wonderful option.

Split the Cost

Have a friend or family member who you can stomach living with? It’s becoming more and more common for friends and family to split the cost of a home. Not only will the financial burden be shared, but you’ll have a lively home with plenty of helping hands to handle the maintenance and upkeep. Just make sure you choose your partner(s) wisely.

Rent and Wait

The final option: find a rental unit and wait it out. In heated housing markets, renting can often be a smart financial decision. The key though, is to ensure you are saving throughout the process. Living pay cheque to pay cheque when renting makes zero financial sense, but if the lower monthly costs of renting a unit allows you to save money monthly, that is the safest move. What goes up must come down. The Canadian government will do everything in it’s power to ensure people don’t lose out on their equity when buying in a heated market, but sooner or later the cost of living will align with the cost of homes in the city. So, if you are in no urgent need of stepping into the market, rent for the time being and make sure you have the down payment when things cool down.

 

Image Source: Shutterstock. https://www.timeout.com/toronto