First-Time Buyers Turn to Condos As Detached Home Prices Jump

An average first-time buyer in Vancouver now requires over a decade to save for the minimum down payment needed for a house under the new tougher federal mortgage rules. This is a sign that affordability in Canada's most expensive cities has reached crisis levels.

Analysts from Royal Bank of Canada, Craig Wright and Robert Hogue say that increasing prices of detached homes in Canada's two expensive cities, Vancouver and Toronto are hiding the reality, that for many Canadians, housing has actually become more affordable over the years due to steady income growth, dropping interest rates and a surge in condo construction.

According to a fourth quarter analysis by the two economists, in the Vancouver region it now takes 109 per cent of median pretax income to afford the costs of a mortgage, property taxes and utilities on a normal detached house. Resale house values in the city jumped almost 4 per cent last year to more than $950,000.

In Toronto, an average first-time buyer would need to save for 76 months or more than six years to come up with the down payment on a low-rise property. The expenses of a detached home now takes up over 70 per cent of median household income in the city.

The single-family home market has become unaffordable in Toronto and Vancouver markets according to National Bank chief economist Stefane Marion. Detached houses have now become a luxury in these two cities where they are only accessible to only a select group of wealthy buyers. There is little hope for prospective buyers that these conditions would change any time soon.

Due to the affordability issue, many first-time buyers are heading into the condo market. The condo market has actually become more affordable for first-time buyers as there is an abundance of supply.

In cities like Edmonton, Ottawa and Winnipeg, it is now cheaper to pay for the mortgage on a condo than it is to rent. This trend has been taking place due to a boom in new condo construction along with weak job markets.

Toronto and Hamilton are the only two major cities where owning a condo unit has become more expensive throughout the years.

The attached graph shows average mortgage payment vs average rent in some Canadian cities.

Reference: The Globe and Mail

http://www.theglobeandmail.com/report-on business/economy/housing/house-prices-soar-but-condos-becoming-more-affordable/article28957142/