average-toronto-house

Photo: realtor.ca

Some point to tiny homes listed for nearly $600,000 as an obvious sign of Toronto real estate veering out of control.

BMO Chief Economist Douglas Porter takes another approach.

He presents calculations suggesting prospective homebuyers approaching that elusive one-per-center status — and wielding a hefty $100,000 downpayment — would still be priced out of Toronto’s detached-home market.

“Surely they can afford a decent place to live in Toronto?” Porter writes rhetorically in his note titled Toronto’s Torrid Housing: Who Wants to be a Millionaire. “Not so much, as it turns out.”

mortgage-chart

In Porter’s fictional scenario, Dudley and Darlene Doright, who are relying on one high-rolling income — an impressive $225,000 annually — “are at best able to afford a semi-detached home on the fringes of Toronto, or maybe a low-end detached home verging on teardown status.”

The Dorights’ lofty household income is taxed 53.53 per cent, and although the well-heeled couple saved a six-figure downpayment (before one of them took time off to raise their baby), they’ll need that mortgage insured.

Mortgage insurance is required for homes purchased for anywhere between $500,000 and $999,000 if the buyer can’t cough up a 20 per cent downpayment.

Meantime, a downpayment of 20 per cent is mandated by law for homes priced $1,000,000 and above. Canada Mortgage and Housing Corporation won’t even insure homes that expensive any longer.

Given the average price of a detached home in the Greater Toronto Area was $1,205,815 last month, the fictitious couple are virtually priced out of that segment of the market in both the 416 and the outlying 905.

And the new-construction market is hardly any more accommodating. In fact, the average list price for brand new single-family homes in the GTA was an even more unattainable $1,316,325 in January.

Now, the affluent Dorights could opt for a semi-detached home in the 905 area code, where that kind of house costs an average of $712,276 as of February. “However, they’re not that common in that region,” Porter notes, dashing the made-up couples imaginary hopes.

For added realism, Porter’s affordability calculations include estimated heating costs, property taxes and a posted five-year mortgage rate of 4.84 per cent.

“If this stylized example isn’t proof enough that the housing market is out of control and in need of some serious intervention, consider some of the other indicators flashing red,” the economist warns.

The average price of a home, including condos, in the GTA soared 27.7 per cent from a year earlier in February, Porter notes, for instance.

And BMO Economics estimates Toronto home prices have risen a shocking 40 per cent in two years, at least on an inflation-adjusted basis.

To fight this fire, Porter dishes out a solution for policymakers — a foreign-buyer tax, like the 15 per cent levy BC imposed on Metro Vancouver this past August.

“That tax seems to have done exactly what policymakers hoped to achieve in Vancouver: cool the market without crashing it,” he explains.

The benchmark price of a Greater Vancouver home in February was off 2.6 per cent from where it stood six months ago but was up 1.2 per cent compared to January.

Both the Toronto Real Estate Board and Ontario Real Estate Association oppose a foreign-buyer tax for the Greater Toronto Area, although there has been some interest from Toronto city councillors despite Mayor John Tory’s doubts about the “politically sexy” move’s effectiveness.

Porter has some choice words for opponents to the tax.

“The Ontario Real Estate Association frets about the possibility that a foreign student won’t be able to afford a house with the tax (and that is some student, looking to buy a $1.5 million pied-a-terre).”

“But we wonder why they are not equally concerned about the Dorights’ inability to buy a home under current circumstances.”

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