Average Canadian Income analysis with Average Household Mortgage


Buying a house, condo or townhouse is a big decision, and you have no doubt begun to scout suitable properties. However, buying a home is a daunting task as you have to consider securing a mortgage – it is a lengthy process that you have to face right from the start. You need to have a clear insight, especially if you are a first time buyer.


What does it look like in 2019?

As per a recent report from the Royal Bank of Canada, affordability is bound to decline in most Canadian cities. The cost of home ownership relative to median incomes will continue to rise, as higher interest rates ensure that carrying a mortgage is costlier than before. House prices are expected to shoot up by approximately 0.5% in 2019, as sales increase 5.6%.


First time buyers are likely to face issues

With the Bank of Canada continuing to hike rates and tougher mortgage stress-test rules in 2019, first-time buyers have to plow over a mountain in order to buy a home. Affordability in Montreal, Edmonton, Calgary and Ottawa is likely to see a drop this year as cost of housing rises relative to average household incomes. Canadians will spend 56% of their median household income of around $68,220 to own a home, which is a shocking development as the value has gone up by 54% as compared to 2018. Ownership in Canada is likely to go down due to affordability issues, and RBC expects a couple of hikes in 2019.


Which is the most expensive area?

Toronto is the country’s biggest market in terms of real estate where the cost of owning a home will take up 79% of the median household income of $71,631 when the 4th quarter arrives, which has gone up 76% from last year. However, Vancouver takes the cake as Canada’s most expensive market. Even though house prices are expected to plummet by 2.5%, the cost of owning a home here will be around 88% of the median income of $77,410 in the 4th quarter of 2019.


Affordability is heavily impacted

Policy makers indulged into various debates before being able to guide the country’s housing market to a soft landing in 2018, but affordability has to be improved as well. If first-time buyers have to shell out exorbitant amounts, they won’t look to the housing market, which is bound to suffer. Since the bar to home ownership is the highest in Vancouver and Toronto where one needs to spend a record 88% and 76% of their median income respectively for mortgage, property taxes, and utilities, these markets could be negatively impacted.


Higher interest payments

There is more bad news to come – in 2019, after 18 months have passed since the central’s bank’s hiking cycle, the average household has to pay around $1,000 more for fulfilling principal and interest obligations. Household debt is already high in Canada so people are at more risk for both consumer and mortgage debt. The Canada Mortgage and Housing Corporation has already stated that people living in Toronto and Vancouver are going to be the most at risk as interest rates go up and personal debt levels set new records. The debt-to-income ratio for Vancouver residents jumped to 242% in the second quarter of last year, while it was 208% for Toronto residents. A major portion of this debt was due to mortgage, which actually makes up around two-thirds of the entire outstanding household debts in Canada.


Even though it means a 7.6% jump from last year, rising incomes will make the situation slightly easier. As per the forecast of the Royal Bank of Canada, average disposable income per household before debt-service payments will grow by $2,300 in 2019. So after fulfilling their debt obligations, average households have around $1,300 more in hand. However, keep in mind the prices of other goods and services are also increasing, so this extra income won’t resolve all monetary problems.

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