Salary needed to buy a Toronto home

Salary needed to buy a home in the GTA: 2017

In Canada by TheRedPin4 Comments

Salary needed to buy a Toronto home

Back in the early 90’s, the song “If I had a million dollars” hit the airwaves. In the four-minute single, musician Steven Page lists out the ways he’d splurge all that money to win over his sweetheart – from buying a house, car, outdoor fort and even a pet llama.

Fast forward to today and the song would be cut abruptly short. At least in Canada’s largest metropolis.

Across the Greater Toronto Area (GTA), one million dollars is the going rate for an average single-family detached home.

Even amid the recent blip in sales activity, that’s a full 21 per cent (or $199,000) jump in prices when compared to the same time last year.

For nearly all house hunters, however, the process of buying a million-dollar detached home (or $500,000 condo) isn’t as clear cut as putting cash on the table and a mortgage and down payment will inevitably enter the equation. Which means working out what you can afford to buy can get pretty complicated.

For a simpler look into the market, TheRedPin broke down the salary you need to earn in order to buy an average home in the GTA.

Just to be clear, incomes in this situation don’t only factor an individual’s salary but that of the entire household, including your spouse as well as anyone else who lives in your home and contributes to monthly mortgage bills.

  • The salary you need to earn based on home type

Salary needed to buy a home

The figures above factor in average prices from January to July 2017 for the entire GTA and not one individual city or town (scroll down for a city-level analysis).

Six-figure household incomes were required for all home types, except for condo apartments, which edged just below that threshold. Detached homes obviously led the pack in terms of needed household income, as it was the only home type that demanded a collective salary over $200,000.

While condos may not be the most expensive property type, buyers needed to earn approximately 24 per cent (or $17,000) more this year than they did last year to afford a high-rise apartment. On the other hand, detached-home buyers needed around 21 per cent ($35,000) more compared to 2016.

  • How have things changed since May?

It’s no secret the GTA housing market has seen a recent slowdown. In May, the first full month the Liberal’s Fair Housing Plan was in effect, home sales declined 20.3 per cent and supply of properties on the market shot up a considerable 48.9 per cent.

So the big question here is – did the salary you need to buy an average property drop from May to July?

For everything from detached houses to townhomes, the answer was yes. The only exception was condo apartments, which saw prices increase collectively over the past three months.

What you need to make to afford a Toronto home

  • How do things change by city?

While getting a big picture look at the GTA housing market is useful, like anything in real estate, location matters.

Below, we’ve broken down the income needed to buy a house across 18 major municipalities. This local analysis is based on prices for all home types (houses and condos combined) for the first seven months of the year.

Brampton

  • Average Home Price: $723,028
  • Needed Household Income: $131,700
  • Avg. Monthly Mortgage: $2,734

Burlington

  • Average Home Price: $822,093
  • Needed Household Income: $144,413
  • Avg. Monthly Mortgage: $3,109

Milton

  • Average Home Price: $768,852
  • Needed Household Income: $132,788
  • Avg. Monthly Mortgage: $2,908

Oakville

  • Average Home Price: $1,203,598
  • Needed Household Income: $205,913
  • Avg. Monthly Mortgage: 4,552

Mississauga

  • Average Home Price: $748,952
  • Needed Household Income: $132,450
  • Avg. Monthly Mortgage:  $2,832

Toronto

  • Average Home Price: $864,228
  • Needed Household Income: $147,750
  • Avg. Monthly Mortgage: $3,268

Aurora

  • Average Home Price: $1,131,787
  • Needed Household Income: $196,913
  • Avg. Monthly Mortgage: $4,280

Markham

  • Average Home Price: $1,117,546
  • Needed Household Income: $191,250
  • Avg. Monthly Mortgage: $4,226

Newmarket

  • Average Home Price: $965,636
  • Needed Household Income: $169,388
  • Avg. Monthly Mortgage: $3,652

Richmond Hill

  • Average Home Price: $1,246,153
  • Needed Household Income: $213,113
  • Avg. Monthly Mortgage: $4,713

Vaughan

  • Average Home Price: $1,142,227
  • Needed Household Income: $195,000
  • Avg. Monthly Mortgage: $4,320

Whitchurch-Stouffville

  • Average Home Price: $1,185,256
  • Needed Household Income: $202,200
  • Avg. Monthly Mortgage: $4,482

East Gwillimbury

  • Average Home Price: $1,015,760
  • Needed Household Income: $175,313
  • Avg. Monthly Mortgage: $3,841

King

  • Average Home Price: $1,555,634
  • Needed Household Income: $263,963
  • Avg. Monthly Mortgage: $5,883

Ajax

  • Average Home Price: $707,001
  • Needed Household Income: $132,188
  • Avg. Monthly Mortgage: $2,674

Pickering

  • Average Home Price: $766,863
  • Needed Household Income: $141,900
  • Avg. Monthly Mortgage: $2,900

Whitby

  • Average Home Price: $735,166
  • Needed Household Income: $136,800
  • Avg. Monthly Mortgage: $2,780

Oshawa

  • Average Home Price: $552,268
  • Needed Household Income: $108,713
  • Avg. Monthly Mortgage: $2,089

  • The Methodology

“How much can I afford?”

Whether you’re a first-time buyer or moving up the property ladder, it’s a question worth asking.

The approach used by nearly all mortgage professionals involves calculating your Gross Debt Service Ratio (or GDS). This ratio measures all your home ownership costs against your total household income. If your GDS Ratio is 32 per cent (or less), you can afford the property.

For this piece, we applied the 32 per cent GDS Ratio rule to average home prices. Moreover, our calculations factored in a down payment of 20 per cent to reflect repeat buyers who have built up equity as well as first-time buyers who received help from the bank of mom and dad.

Assumptions:
Stats based on 2017 year-to-date figures from the Toronto Real Estate Board (TREB)
Amortization 25 years
2.99% Fixed interest rate
Assumed monthly utility costs included
Down payment of 20%
Condo fees estimated for at $0.59 per square foot and $400 for condo apartments and townhomes respectively
Property tax calculated on a per-city basis

Comments

  1. kd

    This is excellent information and a great starting place for homebuyers. –> Know what you can afford before you start to shop.

  2. Richard

    When buying an expensive property such as $1.15 million property, I call into the question the validity of 32% rule.

    People who buy detached house in GTA are not likely young single adults. They are likely to be dual income earners. A couple earning $100,000 each nets more money than a single person earning $200,000.

    Assuming that monthly mortgage is $4300 as the article says, average monthly property tax is $660 ($7900 per year according to City of Toronto website), utilities approximately $450 in total. This will make monthly total house-related cost to be $5410.

    Let’s say the husband and wife each earn a modest $65000 per year income. The after-tax combined monthly income would be $8200. After house-related expenses are subtracted, this leaves $2790. I would argue that this is a livable income, even if the couple has one or two children.

    Now, a detached house would normally come with a basement. If a basement is rented out at a modest $700/month rate, subtracting extra expenses due to additional tenant, I would estimate $600/month is the net. Adding this to $2790, the family would have $3390/month, equivalent of after-tax income of an individual earning $50000 per year. This would certainly be livable.

    32% rule assumes monthly expenditure twice that of mortgage amount. When the mortgage is so high (i.e. $4300 per month), you would have to spend $8600 per month on non-house related things. Unless you live a lavish lifestyle, this is certainly absurd.

    Affordability depends on lifestyle choices. You certainly don’t need $200,000 income to afford a detached house. Otherwise, the price increase of detached houses in GTA in the past several years cannot be explained when the rate of foreign buyer activity is less than 5% as estimated by TREB.

    We own a single detached house in Toronto, and the above is the kind of calculation we do when we plan our expenses.

  3. Derick

    Richard,

    Advocating that people pay out over 50% of their take home pay on housing costs is absolutely irresponsible and a surefire way to produce housebroke couples that will fuel a consumer-driven recession when nobody can afford to save, invest, or buy anything other than consumer staples.

    This article is clearly stating that home prices are far too high given the economic fundamentals, yet people like you see it as impetus to impoverish millions of young people with abysmal advice for the sake of cashing out an overvalued asset.

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