You need an income of more than $220K to buy a home in Toronto, Vancouver, new data shows

You’ll need to earn more than $220,000 to buy a home in Toronto and Vancouver with a 20 percent down payment, according to new data from Ratehub.ca.

Even though home prices have been declining in hot markets like Toronto and Vancouver, the income required to buy a home in these markets remains high due to higher stress test rates caused by rising rates. mortgage rates.

Ratehub.ca says it used real estate data from March 2022 and June 2022 to make the calculations.

Homebuyers in Toronto need to earn $15,750 or 7 percent more compared to March, and those in Vancouver need to earn $31,730 or 16 percent more.

Across all Canadian cities, the annual income needed to buy a home increased by $18,000 on average in the last four months.

Victoria, BC saw the largest increase in June compared to March, with $35,760 or 23 percent in additional required income.

“Home prices will need to fall significantly to offset the effects that higher mortgage rates have on the stress test,” Ratehub.ca co-CEO James Laird said in a statement. “Unless this happens, housing affordability will continue to be significantly affected by the current environment of rising rates.”

Rapidly rising interest rates have pushed down Canadian home prices in recent months, with the median home price falling 1.9 percent in June compared to May, according to the Canadian Association of Real Estate (CREA).

June was the third straight month of falling prices and the biggest monthly drop since 2005.

BMO Capital Markets Senior Economist Robert Kavcic said in a July 15 note that the Bank of Canada’s recent move to raise its key interest rate by a full percentage point is setting the stage for an even deeper correction in the real estate market in 2023.

Kavcic said the spike that has prompted commercial banks to raise their prime rates has made it more difficult to qualify for a mortgage under Canada’s stress test rules.

The stress test sets the qualifying rate for unsecured mortgages at two percentage points above the contract rate or 5.25 percent, whichever is higher.

Bank of Montreal, CIBC, RBC, Scotiabank, TD Bank and National Bank raised their prime rates by a full percentage point to 4.70 percent from 3.70 percent last week in response to the central bank’s hike.

Five-year fixed rates continue to hover at or slightly above five percent.

“Many potential buyers are sitting on the sidelines right now waiting to see how this rate environment shakes out, which is why you have seen transaction volume drop so significantly in those major markets. But the demand is still there,” Ratehub.ca’s Laird said in an interview.

Rental rates are rising, so they would support the market from an investor perspective, first-time buyers still want to get into the market and many new Canadians prioritize owning a home when they arrive here, he explained.

“If rates moderate at this level or stay at this level, I expect to see a reasonable downhill homebuying cycle. If rates continue to rise, I think we will continue to see people waiting on the sidelines.”


This report from The Canadian Press was first published on July 21, 2022.

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