Mortgage rules in Canada have been tightened up again, with the hope that the high prices of some markets will be reigned in. I keep seeing the media parroting the line “The changes affect properties that cost more than $500,000 — a small percentage of the overall market” I got to wondering if this really is a small percentage.
In Calgary, I already know that $500K buys you an average home in an average neighborhood. (I spend a lot of time looking at listings in my spare time). Toronto and Vancouver are worse – so, if we are already seeing exceptions in three of the biggest cities in the country, how many more houses are out there over $500K? Let’s pull up the MLS listings on www.realtor.ca and see what’s what:
I am going to round everything to the nearest thousand ($K) for this discussion. As of today, I am pulling up 210K residential listings. Of which, 43K are asking $500K and up. That is %20 of the listings – not exactly a “small percentage”!
Keep in mind that these numbers include every apartment, lot, and mobile home listed – you would expect even in this inflated market that the entry level for those will have lots under $500K. So, lets run this again with a sub set that represents the traditional Canadian ownership dream – my own house that I can do with as I please. In realtor search terms, this translates in to a freehold property (one that you own the land and building in perpetuity, there are no monthly fees being paid to another party that actually owns the land). I’m also going to stick with fully detached buildings, so no duplexes or townhouse style buildings. I’m using this sub set as being the step up that many people aspire to, you may start with an apartment or attached building, but what you really want is a house. Also, at least until recently in Canada, your own house you can do with as you please has been an attainable goal by people earning something least approaching an average salary in this country.
If you want to go run these numbers yourself read this paragraph, or skip ahead to the next one if you just want to trust my results :). Go and load www.realtor.ca search for any area of the country and then promptly ignore what it pulled up and just zoom out to see the whole country. In the search areas in the top, make sure you are searching residential properties. Your initial search will show you all the properties, my 210K properties number I pulled up today. Now set your price to ‘$500,000 – Unlimited’ – that gets you to the 43K number I quoted above. Obviously, this is live data and your numbers will reflect the market at the time you pull the numbers. So, now we want to restrict down to just houses you can own outright – you need the “more options’ section. Set the building type to ‘house’, and keep the style to detached, to keep the duplexes etc out. Set the Ownership/title section to ‘Freehold’ or you will end up pulling a bunch of cheaper options where you don’t really own the property, eg “Condo”. Just adjust the parameters to see different numbers, make sure you are zoomed out to see all of Canada to get country wide results! With me so far? Let’s look at my results:
-Looking at detached freehold houses, I see the following interesting points-
– 20K total listing at >=500K,
– 48K total listings, so we have 42% of houses being listed at 500K and up!
– Top three markets, Vancouver 5.5K, Toronto area 5.1K, Calgary 2.8K.
– While rarer outside of these markets, there are still another 2.7K in the southern Ontario area, and even St. Johns Newfoundland has 177 houses listed over $500K.
Conclusion: These new rules really do affect a LARGE amount of the market, especially if you are looking for a house. However, the rules are at least targeting the hottest markets of southern Ontario, Vancouver, Calgary, and Edmonton.
That being said, I think the damping effects on price really will be felt more in the near Toronto area, and Vancouver. To see why, try searching the Vancouver and Toronto area for any house (same criteria as before) under $500K. I found nothing in Vancouver proper today, and just a smattering further out in the Greater Toronto area (crappy stuff as expected at the bottom end). Compare to Calgary/Edmonton, there are still a lot of decent houses available in different parts of the city. I tried searching 400-425K in Calgary, and pulled up houses in all but the near SW/West city, considered “desirable” in terms of location.
Now reverse your search and see what kind of properties come up looking for $1000K+, the million dollar house! Zooming out to see the whole country, I see:
-Houses listing for 1 million plus-
– Vancouver: 3.4K
– Toronto: 2.9K
– Calgary 0.7K
If you zoom into each city, you are going to quickly figure out that a million bucks buys you a nicer average house way out in the burbs of Vancouver, or a basic unimproved old house closer in. Pretty much an average house. The new rules of %10 down on amounts over $500K mean an extra $25k required just to meet the new minimums on a $1 million loan. I’d call a 50% increase a bit of a damper on a 1.075 million dollar home!
Toronto looks to be slightly cheaper version of Vancouver, perhaps 100K off on the unimproved older house closer in. At any rate, the prices are ridiculous, driven higher and higher on the wings of 3%ish mortgage rates.
I shudder to think of the people assuming 900K mortgages in the Toronto/Vancouver area – a quick calculator on Tangerine’s web site gives me $4.3K monthly payments @3%. If rates ever go back up to “only” 5%, they are looking at $5.2K per month, $900 per month increase! But who can afford that kind of money – “how much I can borrow” calculator on Tangerine’s site says I need to earn around $200K per year to even afford that million dollar “average” home. That would put me in the top %2 percent again the Maclean’s rank your income scale in Canada. Even a married couple splitting that amount is still around the top 5%.
Is the current situation a bubble that will correct itself in time? Well, if interest rates ever go up significantly again, you bet that will result in a huge correction. Your guess is as good as mine on when or if that might happen.
Unfortunately I can’t really say much about houses in Saskatchewan or Manitoba, as realtor.com doesn’t have data for freehold lots in Sask., and nothing for detached style for either province. Removing those criteria does show me 241 >=$500K “house of any type” in Saskatoon, so it’s 1/3 of Calgary’s when you adjust for size. Winnipeg showed me only 271 properties >=$500K definitely a “bargain” city compared to Saskatoon or Calgary!
Also my 42% >=$500 K is inflated too as I don’t include those cheaper provinces.
For all Houses of all types:
577/3229=17% Sask >=500K
335/3248=10% Man >=500K
Yeah, that would drag my average down a bit – 3% of the total market, so lets call it 40% of the houses in Canada over 500K, still a lot!