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Renters earn more than the income needed to buy in these cities
Rising home prices and higher mortgage rates are making it increasingly difficult for renters to switch to homeownership, but first-time homebuyers in a handful of Canadian cities may have reason to hope.
In 14 of Canada’s 50 most populous cities, renters earn more than the income needed to buy a starter home, finds a new study by real estate marketplace Point2 Homes.
At the top of the list is Edmonton, followed by St. John’s, N.L.; Regina; Saguenay, Que.; Trois-Rivières, Que.; Quebec City; Lévis, Que.; Winnipeg; Saskatoon; Gatineau, Que.; Calgary; Sherbooke, Que.; Terrebonne, Que. and Laval, Que.
The study considered starter homes to be valued at half the city’s benchmark price and assumed a 20-per-cent down payment with a loan based on a 5.75 per cent, 25-year fixed-rate mortgage. It determined that the monthly mortgage should not represent more than 30 per cent of a renter’s household income. Given that criteria, renter household income is two to 52 per cent higher than the minimum income needed to comfortably afford a starter home in those 14 cities.
Edmonton offers renters their best bet for making the leap to homeownership, with household income around $70,000 and the price of a starter home hovering around $185,000. Using Point2Homes’ calculation, Edmonton renters earn $24,000 or 52 per cent more than the minimum income needed to buy an entry-level home in the city.
Though income plays an important role, lower home prices are the main reason renters can afford to fulfil their homeownership dreams in the 14 cities, with starter homes costing less than $200,000 in 10 of the cities on the list.
The news is less positive for renters living in 36 of Canada’s 50 largest cities, however. The study says they would need to earn up to 59 per cent more to afford a starter home. Ontario cities make up much of that list, with renters in Richmond Hill, Oakville, Markham, Vaughan and Burlington earning less than half the income they would need to buy a starter home. For example, renters in Richmond Hill, Oakville, Markham and Vaughan earn an average of $70,000 but would need between $158,677 and $169,749 to afford an entry-level house.
The situation isn’t much better outside the least affordable cities, Point2Homes said, and that’s causing stress for renters with dreams of buying a house.
“Being so far away from achieving their homeownership dream is a nightmare, but earning 80 per cent or even 90 per cent of the income needed to afford a home is the real Gordian knot: Not knowing whether to make the jump to homeownership or not keeps renters in a tense, frozen decisional space — their very own housing limbo,” report author Andra Hopulele wrote.
What’s more, starter homes are scarce in the most populous cities. Only 13 of the 50 largest cities have shares of entry-level houses above 10 per cent, Point2Homes said. Of those, only five meet all three criteria for affordability.
But for renters in Regina, Calgary, Edmonton, Saskatoon and Winnipeg, things are much brighter. In those cities, renters have enough income, starter homes have the right price and the market has the highest share of entry-level dwellings, a key factor that makes the difference for those seeking to become homeowners.
“It doesn’t matter if renters have the right incomes and home prices are low: Home seekers also need some options to choose from,” the study said.
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Today’s Posthaste was written by Noella Ovid, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
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