While Toronto’s home buyers are now labouring under a climate of inflamed prices and rising interest rates, long-term observers of the city’s real estate segment argue that affordability has never been a feature of the market, taking into account the double-digit interest rates in previous decades.
To determine the accuracy of these positions, online property platform Zoocasa looked at the city’s current and historical average home prices and median total household income (adjusted for inflation), along with interest rates and inflation rates.
“Although borrowing was more expensive in the 1980’s and 1990’s due to high interest rates and inflation, buying a home was more affordable when looking at the relationship between median incomes and average home prices,” Zoocasa stated in its report of the study results.
“In the decades since, borrowing has gotten cheaper, but property less affordable as average Toronto home prices skyrocket while median household incomes grew at a much slower pace.”
Read more: Toronto illustrates stark divergence between two prominent asset classes
“Since 1983, the median total income in Toronto has increased 33% from $58,700 to $78,280 in 2015 (based on the last Statistics Canada Census). Comparatively, the average Toronto home price has increased an astounding 693% from $101,626 to $806,071 in 2017 (the most recent year for which complete figures are available),” Zoocasa explained.
The real estate platform also culled data for monthly payments using Ratehub.ca’s mortgage calculator. Zoocasa found that the monthly mortgage payment for “an average Toronto home (assuming minimum 5% down payment and 25-year amortization) would have been $1,698 in the 1980’s, $1,777 in the 1990’s, $2,156 in the 2000’s and $3,615 in the 2010’s to date.”
Meanwhile, Toronto’s debt-to-income ratios for mortgages stood at 32% in the 1980’s, subsequently exhibiting a steady trend of growth to 35% in the 1990’s and 39% in the 2000’s. This ratio dramatically spiked up to 60% in the 2010’s to date, showing that “even with double-digit interest rates in the 1980's, mortgage payments made up a much smaller portion of household expenses compared to today.”
The inescapable conclusion is that while Toronto residential real estate has never been on the affordable side, “Millennials legitimately have it harder than their older counterparts when it comes to buying a home and affording the carrying costs,” the report stated.