Expect to pay 32 percent of income for housing

If you are buying a home in Canada, be prepared to pay 32 percent to nearly 50 percent of total family income towards the monthly housing costs. Yet don’t sweat the expense too much - studies show a mortgage investment may provide the best payback you will ever see.

In the first half of 2001, the cost of owning an average detached bungalow in Canada was $1,218 a month - including principal, interest, taxes and utilities - 1.8 percent lower than in the last half of 2000. The findings come from a Royal Bank of Canada survey, which found that falling mortgage rates and rising household incomes across Canada have led to the biggest boost in home affordability since 1996.

The average monthly home owning costs ranged from a low of $900 a month in Atlantic Canada to a high of $1,508 in British Columbia.

The Bank's 'affordability index’ declined from an average 32.9 percent in the second half of 2000 to 32 percent in the first quarter of this year and a projected 29.8 percent in the second quarter. The index measures the proportion of pretax household income needed to own a home.

Affordability in Canada’s three largest cities breaks down as follows for the first quarter of 2001:

In Vancouver, where the average detached house price leads the country at close to $350,000, it takes 46.7 percent of income to cover the typical payments. This is expected to fall to 43 percent this year, the lowest level in 15 years.

In Toronto, the average homeowner pays 35.8 percent of income to pay for their house, the same level as in 1995. The average detached house sells in Toronto for $243,250.

In Montreal the average detached house sells for $121,000 and it requires 32.1 percent of income for payments, virtually unchanged from a year earlier.

Average house prices in Canada increased by 3.3 percent in the first quarter of 2001 to $161,500 up from $157,580 in the same period last year, the Bank said.

Sales of existing homes rose 5.7 percent to an annualized pace of 352,000 units, a level that, if maintained throughout the year, would surpass 2000's record by about five percent.

"We continue to expect housing market activity in Canada to stay healthy despite the economic slowdown and the still-uncertain short-term employment outlook," Royal Bank economist Carlos Leitao said.

"Household incomes are still rising and there is still a healthy degree of pent-up demand in this country, unlike in the United States, " he added.

Investing in your own home apparently remains the best place to put your money, despite where you live.

Principal residences in Canada account for 38 percent of family assets compared to 29 percent for all financial assets combined, according to a recently released Statistics Canada survey, reports Canada Mortgage and Housing Corporation, (CMHC).

"As of 1999, principal residences were valued at over $1.1 trillion, the largest asset class held by families. In fact, over 60 percent of Canadian families own their principal residences," said Ali Manouchehri, a senior economist at CMHC's Market Analysis Centre.

Also, equity returns on the sale of a principal residence remain tax free in Canada.

The best advice for would-be homebuyers? Bite the bullet and stretch the budget to put aside a third or more of your income for mortgage costs. The expense may seem high now, but it will pay off in long-term financial security.

By: Frank O'Brien
September 13, 2001

Copyright 2001 Inman News Features
Distributed by Inman News Features