Posthaste: How Much Income You Need Now to Pay for a Home in Canada

Spoiler – it’s been less than two months

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

Good morning,

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House prices falling from great heights should be good news for Canadian buyers – too bad mortgage rates are going up at the same time.

The Bank of Canada has raised its key policy rate by three percentage points since March last year, and the national composite MLS Home Price Index has since fallen 7.4% from its February peak.

Interest rates on commercial prime loans have gradually risen to 5.45 percent after the Bank raised its interest rate to 3.25 percent in September.

The rate hikes raise the threshold of the country’s mortgage stress test, which requires borrowers to qualify for the reference rate of 5.25 percent or their offer rate plus 2 percent, meaning some now face a qualifying rate of more than 7% .

So while house prices fall, borrowing costs rise — if you can even get up that ladder.

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In July, Ratehub.ca calculated the minimum annual income needed to afford a home in Canada’s major cities, based on data from March and June. At the time, while house prices were falling, required income had increased by an average of $18,000.

Ratehub.ca came back this month to see if anything had changed and found that home affordability had improved in all 10 cities between June and August.

“In every city we looked at, houses are slightly easier to afford than they were two months ago. This is because rates have remained unchanged while house prices have fallen,” said James Laird, co-CEO of Ratehub.ca and president of mortgage lender Canwise.

Toronto had the biggest affordability bump, with the income needed to pay for a home falling by $12,550 between June and August 2022.

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Mind you, you still need a healthy income.

Toronto home prices fell $80,300 between June and August, Ratehub.ca says. In March, when the average mortgage rate was 3.14 percent and the stress test was 5.25 percent, the income needed to buy a home was $210,750. By July, when the average mortgage rate had risen to 5.21 percent and the stress rate to 7.21 percent, needed income had risen to $226,500. In August, the mortgage rate was 5.3 percent, the stress rate was 7.3 percent, but needed income was down $12,550 to $213,950.

Hamilton saw the next biggest drop, with required income falling $11,560 to $167,500.

Vancouver’s affordability also improved, and the income needed to pay for a home fell by $8,100 to $223,850.

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Home buyers can find this little comfort in markets where real estate values, as measured by the MLS home price index, are still above year-ago levels almost everywhere in the country. RBC economist Robert Hogue said in a report that only Kitchener-Waterloo prices have actually fallen by 1.7 percent right now. In places like Atlantic Canada, prices remain significantly higher, he said.

Posthaste: How Much Income You Need Now to Pay for a Home in Canada

“For many potential buyers, the prospects for purchasing a home remain bleak. The partial reversal of past massive price increases is little consolation at a time when sharply higher interest rates are deeply undermining affordability,” said Hogue.

According to Ratehub.ca’s study, the income needed to pay for a home in other Canadian cities ranges from $107,570 in Montreal to $105,530 in Halifax to $76,220 in Winnipeg. In Ottawa, you need to bring in $129,980 per year and Victoria, $183,700.

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

COMING SOON CANCELING TRAVEL MANDATES Passengers walk through Calgary International Airport on Monday. The federal government will remove all remaining COVID-19-related travel measures, ending masks on planes, vaccine mandates and the mandatory use of the ArriveCan app from Saturday. Airlines, airports, tourism associations and other groups called on the government months ago to abandon the app and mandates as other countries scrapped similar requirements. Photo by Gavin Young/Postmedia

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada
  • Federal Reserve Chair Jerome Powell virtually joins the discussion on “digital finance” ahead of the Banque de France conference on opportunities and challenges of the tokenization of finance: what role for central banks?” conference in Paris, France
  • The International Monetary Fund will publish a detailed assessment report on the Bank of Canada’s transparency practices. At the same time, the bank is publishing its response to the report’s recommendations
  • Charmaine Williams, Ontario associate minister of social and economic opportunities for women; and Ontario Treasury Secretary Peter Bethlenfalvy will make an announcement in Ajax
  • Today’s data: US House Price Index, New Home Sales, Durable Goods Orders
  • Income: BlackBerry, Lion One Metals, Monarch Mining

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

Posthaste: How Much Income You Need Now to Pay for a Home in Canada

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

Central banks will have to raise rates higher than expected to fight inflation that is becoming more entrenched, the Organization for Economic Co-operation and Development said in its latest outlook report Monday. The global economic agency said it expects the Bank of Canada to raise interest rates to 4.5 percent by 2023, as inflation remains stubbornly above the central bank’s target range of between two and three percent. The OECD’s forecast of 4.5 percent inflation next year puts Canada roughly in the middle of the pack, as today’s chart shows, but above the United States.

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

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Posthaste: How Much Income You Need Now to Pay for a Home in Canada

While many investors are running for the exits, Dragon’s Den star Kevin O’Leary is looking for opportunities. In fact, today’s volatile markets may just be the best time to buy stocks, he says.

“It’s very discouraging for the stock markets to lose nearly 1,000 points in 40 minutes,” he told CNBC.

“That means volatility is back. If you’re an investor, it might be best here – since you can’t guess the bottom – to grab opportunities on days like today and buy stocks you think are attractive.”

Our content partner MoneyWise takes a look at the industries O’Leary likes right now.

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Today’s Posthaste is written by Pamela Heaven (@pam Hemel), with additional coverage from The Canadian Press, Thomson Reuters, and Bloomberg.

Do you have a story idea, pitch, embargo report or a suggestion for this newsletter? Email us at [email protected], or click reply to send us a message.

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