Cross-country checkup: The cost of buying in Canada this summer and hack to make it easier.

No matter which part of the country you call home, the cost of simply being a human in Canada has become staggering these past few years. Among a bevy of other growing expenses, the cost of home ownership has become a whole new ball game.

After the Bank of Canada held its overnight rate for the second month in a row, and global banking unrest helped bring fixed rates down for the first time in close to a year, it feels as though things could be starting to look up. Today, we’re looking at what buying in Canada’s major cities could look like and how an income suite could help this summer.

Spring fever?

Canadians have witnessed an unprecedented nose-dive of our real estate market for the past year. With prices dropping as much as 20% in some cities in response to a steep rate increase by The Bank of Canada and the rising cost of living from coast to coast, we’ve all become more or less accustomed to the cycle of high rates, low prices, and very little movement on the real estate transaction front.

But spring is a time of change, renewal, and (traditionally) a warmer market and finally, the latter seems to be returning this spring. For the past 3 years, spring has brought a bevy of new challenges, from a little germ that faithful March to the start of a rate increase cycle the next, so market movement when the snow melts comes as a welcomed old friend.

This spring, consumers seem to be regaining lost confidence thanks to relative calm on the rate front and returning to their house hunts. And as competition has become tighter for the still lacking inventory available, prices have started to come back up. In April, the national benchmark MLS price was up 4% month-over-month from April and, at $686,371, was the highest it has been since May of 2022.

But what does this mean for buyers this summer?

Can I afford to buy this summer?

While prices starting to creep up has been welcomed news by prospective sellers, it’s undoubtedly added fuel to the fire for buyers waiting to pounce. So, have you missed the boat if you didn’t buy while prices were down? Absolutely not - for a few reasons.

First, it’s important to remember that in a balanced, healthy market, we expect to see a temporary price surge - we just haven’t seen it for a few years. Plus, demand is still far outpacing supply. Experts speculate that while this momentary price surge bodes well, many would-be buyers are sticking to the sidelines, waiting to see if prices increase further before listing. So we are seeing an increase in multiple-offer scenarios, bidding wars and increased market tension into summer. This could see more price increases throughout the summer, but experts tend to agree that we aren’t likely to see any sustained increases until rates come down further and inflation proves itself under control.

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So if you are considering getting into the market this summer, what sort of household income will you need? Let’s look at some numbers based on a conventional (20% down payment) mortgage at a rate of 4.89% with a 30-year amortization.

• Vancouver

  • Average sold price: $1,143,900 (March 2023)

    • Up 1.8% month over month

  • Household income needed: About $195,000

• Calgary

  • Average sold price: $535,743 (March 2023)

    • Up 5.7% month over month

  • Household income needed: About $95,000

• Toronto

  • Average sold price: $1,108,606 (March 2023)

    • Up 1.2% month over month

  • Household income needed: About $190,000

Make your money go further

As you can see, affordability still has a long way to go, even with fixed rates down from where they were this winter. But there is one simple hack that we are seeing more and more first-time buyers employ that is helping to increase purchase budgets, stretch household incomes further and even put some cash back into buyers’ pockets - income suites.

We’ve found in the past that many first-time buyers shy away from properties with income suites - perhaps because of the added responsibility of becoming a landlord or due to the dream of that elusive single-family home. But as affordability has gotten increasingly worse, the power of the income suite has proven itself to be a powerful tool.

Let’s take that average purchase price of just over $1.1 million in Toronto. To buy a single-family home at this price, you’ll need roughly $190,000 annual household income, a 20% down payment ($220,000) and a monthly payment of about $4,600. But, if you were to purchase a home for around the same price tag but it included a one-bedroom income suite, the monthly income required would drop by over $30,000 and by collecting $2100/month in rent, you’d be cancelling out about half of that pesky mortgage payment - a savings that makes taking on landlord responsibilities much more enticing, no?

Also note that if you purchase an owner-occupied rental property, such as a home with a basement suite, many lenders will remove the costs of utilities and taxes from your debt-to-income ratios. Stronger debt ratios mean an increased borrowing power, a potentially more significant budget for finding that perfect property and even the potential for a better rate. And while many lenders will use 50% of your expected rental income to qualify, some may use up to 100%, significantly impacting your qualification.

The moral of this story?

This review of what is happening in the market, what to expect and how you can leverage an income suite all boils down to the same story we tell around here all the time - timing the market is impossible and trying to do so to save the most money will keep you from ever starting. Instead of worrying about what has happened or what’s to come in the market, focus on what you want, what will be best for you and your family and what will help you create the future you want.

Whether your time feels like now or a year down the road, we got you.