You need to earn a lot of money to buy a house in Toronto right now.
There are endless reports about prices falling in the GTA, but getting a mortgage to take advantage of those price declines is not easy.
To qualify for a mortgage and clear that “stress test” hurdle is harder than ever, because with mortgages hovering around 5.25%, prospective buyers must show they could manage if rates jumped to 7.25%.
The only good news is that the bad news will not go on forever.
Things should begin to look better before the end of the year. In 2024, lower housing prices — plus stable interest rates — will improve affordability.
That’s according to the recent RBC Special Housing Report from Robert Hogue, assistant chief economist at RBC, which claims the bottom of the downturn is in sight.
The report begins: “The Canadian housing market correction has yet to run its course but it’s gradually letting up.”
The prediction is that prices will level out later this year — provided the Bank of Canada is finished raising interest rates.
Hogue’s report states: “The sharp deterioration in housing affordability since 2021 won’t unwind quickly. Buyers will continue to face steep challenges, especially in B.C., Ontario and other expensive markets where ownership costs have ballooned during the pandemic.”
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In Toronto, where a tiny, semi-detached starter house needing renovation is still a $1 million, a buyer needs to earn at least $240,000 a year to get a mortgage.
GTA home was just over $1 million — down 18% year over year.
A mortgage specialist (who prefers to remain anonymous ) in Toronto offered some useful information on the current market.
The basics are: buyers need a 5% down payment for the first $500,000 they hope to borrow, and 10% if they intend to borrow between $500,000 and $1 million.
You can’t borrow over $1 million without a 20% down payment.
How much will the bank give you? About four times your salary, he advised, or a titch more if you’re debt-free and otherwise a good risk.
“Right now, it’s impossible to buy anything unless you’re earning $150,000 or more,” said the specialist.
“On $150,000, you can get a mortgage for $600,000.”
The truth is, you will probably need two good salaries to make this work, “and anyone who wants to buy in the same community where he or she grew up will need help from their parents.”
A condo may be cheaper than a house, but pre-qualifying for a condo mortgage is actually trickier, because maintenance fees are an unknown — $400 monthly? $1,200? — until you find the condo of your dreams.
Getting a mortgage if you’re self-employed is also currently more difficult.
“There’s no such thing as an easy deal any longer. It does not exist.
“We’re headed into stagnation. People should get used to a 5% rate. As a rule of thumb, mortgage payments will cost you $6 for every $1,000.”
That puts the monthly payment on a $1-million mortgage around $6,000.
When the market starts to pick up after March break, the specialist hopes everyone will remember the three main rules of real estate: location, location, location.
“That has never changed.”
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