Rebound hammers affordability of GTA homes
October 29, 2009
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Tony Wong
BUSINESS REPORTER
Housing affordability deteriorated sharply in Toronto in the third quarter of 2009 as home prices spiked above pre-recession levels.
"The big improvement in stock markets likely helped drive prices higher, especially since Toronto has many people who work in the financial services area," H?l?ne B?gin, senior economist at Desjardins Bank, said in an interview.
Low interest rates, pent-up demand and a lack of listings saw average Toronto prices for existing homes hit $402,762 in the July-September period, the largest such increase of any Canadian city.
"Many people waited over the winter and now they're afraid that prices and interest rates will go up, so they're making a commitment," says B?gin.
"The improved economic outlook and low rates have fuelled a strong comeback."
The Desjardins Affordability Index released Wednesday shows Toronto falling 3.4 points to 125.8 in the third quarter compared to the second quarter.
The lower the number, the less affordable the property. The current figure indicates that the average Torontonian's income is 25.8 per cent higher than the income required by mortgage lenders to finance an average residence
The Desjardins index remained in unaffordable territory for much of 2006 to 2008.
At the start of the year affordability improved dramatically as prices fell along with interest rates. But the recent spike in home prices threatens to push the index below the long-term average in the Toronto market.
"The drawback of this surge is that it makes the housing market less affordable, which could cool buyers' enthusiasm," says the report.
The strong comeback in the real estate market has had Bank of Canada Governor Mark Carney warning home buyers not to take on too much debt.
Interest rates have nowhere to go but up, and buyers should factor in higher costs down the road, he warned.
"I think the governor is worried that we are creating conditions similar to a bubble that could overheat," said B?gin.
"No one expected the market to catch up so quickly, but I think it's a good message to heed."
Nationally, Vancouver remains the most unaffordable housing market, where the average person's disposable income is not sufficient to buy a home.
The most affordable market was Saguenay, Que., the only market that saw house prices fall in the third quarter.
Read more, and get tips on handling a bidding war, in the Yourhome.ca Editor's blog.
Toronto Star