May 26, 2018

House Prices Over The Past 20 years

I read a very interesting article in The Star on March 26, 2012 with statistics on the cost of purchasing a home and renting today compared to 20 years ago.  Considering the cost of housing today, it is shocking to see how expensive financing was back in 1990.

In Toronto 20 years ago (1990), the average two-bedroom condominium sold for $250,000.  Interest rates were 12% and the amortization was 25 years.  You needed 20% down payment (or $50,000).  Your monthly costs were as follows:

  • Mortgage payment:  $2,072
  • Taxes:  $150
  • Manintenance fees:  $300
  • Total:  $2,522

According to CMHC guidelines, the household income required to afford these payments was approximately $94,500 per annum.  The average rental rate in 1990 for a similar 2 bedroom condo in Toronto was $1,200, thus, it made little sense at that time for renters to enter the housing market.

Today, the same condo averages $500,000.  Using an interest rate of 3% for a 5 year term and an amortization of 30 years with a 20% down payment ($100,000), the monthly cost to carry this condo would be as follows:

  • Mortgage payment: $1,682
  • Taxes:  $300
  • Maintenance fees:  $500
  • Total:  $2,482

According to CMHC guidelines, the household income required to afford these payments is approximately $93,000 pre annum.

The average rent for a similar unit today is $2,300, so it is conveivable for those renting even in these price ranges to afford to buy.  If you have only 10% down payment, this will add approx. $250 to your monthly payment.  If you have 5%, it will add about $350.  If the government changes the amortization period back to 25 years, this will add about $250 to each of the above mortgage numbers.

Since the top 20% of renters average more than $100,000 a year in income, they should be able to afford purchasing a home in Toronto in the lower 20% price range.

If buyers take advantage of these low-interest rates to lock in for 5 or 10 year terms, they will not be subject to the fluctuations that characterized the recession of the early 1990’s.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406

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