18.5% price growth daunts new buyers

by Ephraim Vecina17 Feb 2016
As a fiscal environment characterized by weakened purchasing power due to a sagging petro-centric economy, Canada’s real estate market is gradually placing an insurmountable barrier for prospective buyers, an analyst warned.
In the February 7 edition of his column at The Globe and Mail, long-time finance commentator Rob Carrick said that the median price for homes in high-demand locales has grown by as much as 18.5 per cent over the past year. The figure represented an average price of $848,999 for detached housing in the Greater Toronto Area alone—well out of reach of most millennials and young families.
According to Carrick, this begs the question: “Who can afford to buy in this market, and how are they paying?”
This development has drastically changed the dynamic between would-be buyers and affordability calculators offered by brokers and financial institutions, Carrick said. Before, customers would refer to these calculators to get an idea how much they’ll need to set aside for outlay. Nowadays, people use these to know how much they’d save instead—which defeats the purpose of the calculators.
“Gauging house affordability using calculators offered by banks is bad personal finance because the point of these tools is to get people excited about home buying and not to save them from spending too much,” Carrick said of the potentially dangerous effects of this change.
“Real-life affordability is even worse than these calculators say. They typically ask users to supply their gross household income, expected monthly property taxes and heating costs and other debt payments. Also required are mortgage terms and a down payment,” Carrick added.
Most importantly, Carrick said that what these calculations don’t include are upkeep, daycare, and maintenance costs, and being aware of this limitation can cause much anxiety among new buyers, which can lead to a far weaker property market in the long run.

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