Canada’s housing markets largely undervalued: RE/MAX Report

Despite the commonly held notion that housing in Canada is unaffordable, the 2020 RE/MAX Housing Affordability Report reveals that 75 per cent are currently undervalued.

“Despite the many challenges that continue to plague Canadians when it comes to the prospect of home ownership, such as record debt loads, there is promising opportunity across the country to enter the market,” says Christopher Alexander, Executive Vice President and Regional Director, RE/MAX of Ontario-Atlantic Canada. “That said, the national housing market still has challenges to overcome, especially in centres like Toronto where demand is far outstripping supply, pushing prices up considerably as a result. We need to continue to push for an increase in housing supply for buyers and renters, but we have yet to see a comprehensive national housing strategy to help facilitate this shift.”

A Leger survey conducted on behalf of RE/MAX reveals that 38 per cent of Canadians claim that the high price of real estate is one of the biggest obstacles preventing them from buying a home.

Also on their list was an insufficient salary level preventing them from saving for a down payment (26 per cent) and a fear of rising interest rates (17 per cent). Meanwhile, the majority of RE/MAX brokers (56 per cent) claim that low or shrinking inventory is a more common factor.

Emerging trends like co-ownership with friends and family have become common in markets such as Vancouver and Toronto. Sharing a single-family home between two families, dividing the floors between them, or children seeking financial support from parents for down payments are becoming more common practices in Brampton, Edmonton and Ottawa.

Of the regions surveyed, Winnipeg, Regina and Halifax are currently the most affordable markets with average sales prices of $281,105, $301,473, and $319,071 respectively. Vancouver, Toronto and Mississauga are currently the least affordable regions in Canada, with average sales prices of $1,195,923, $883,520 and $760,005 respectively.

“All levels of government must work together to find a solution to Canada’s inventory issue, as the market will remain elusive for many otherwise,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “In the interim, working with experienced, professional agents can provide insight into creative and effective ways to navigate the current housing landscape.”

In Toronto, factors such as the OSFI mortgage stress test, listing shortages, rising prices and saving enough for a down payment are cited as preventing buyers from purchasing property. Buyers in this region are primarily looking to purchase condominiums, but as one of Canada’s least affordable housing markets, they continue to be priced out.

Despite recent price depreciation, Vancouver continues to experience affordability challenges. The mortgage stress test as well as government taxation policies are the leading factors preventing home ownership. Similar to Toronto, buyers are predominantly looking for condominiums, followed by townhomes as more affordable options.

Regina is currently the most affordable city in Canada with a total average sale price of $301,473 and on average, only 12 per cent of monthly income required to carry a typical mortgage in the area.

First-time buyers typically look for single-detached homes. Given the undervaluation of the market, co-ownership with friends and family has not been a typical practice. Buyers do not report being priced out of this market, which has seen Canada’s most affordable housing prices for the past seven years.

Halifax is also currently exempt from experiencing the affordability challenges seen in other regions across Canada. In this fairly valued market, buyers do not report being priced out of the market, struggling through the mortgage stress test, or needing to implement creative tactics to enhance affordability.

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1 Comment
  1. Geoffrey Turnbull says

    Having seen a few of these articles around, I have been confused about how these assertions of ‘affordability’ by realtors’ groups work because they don’t seem consistent with my anecdotal experience as a Canadian. I appreciate that this article includes the ‘Re/Max Housing Affordability Index’ table of values so it’s possible to examine the assumptions. The old rule-of-thumb was that you should not spend more than a third of your after tax income on housing. The table of values in this article shows 31% as the ‘% of monthly income for mortgage’ in Victoria, so that seems like a good value to investigate.

    It seems reasonable to assume that Re/Max has the best information on housing sale prices available so we should carry their value for Avg. Sale Price Estimate for 2020.

    The table shows a 2019 Income Estimate of $104,548. I do not understand what this estimate is meant to refer to but Statistics Canada’s value for median after-tax income of census families in Victoria was $55,800 in 2017. If we gross that number up by the 2.7% assumed by Re/Max, we get $58,854 for 2019. This is pre-tax income. After federal and provincial taxes, that’s $45,595 a year, or $3,800 a month in ‘take home’ pay. Plugging that number in to the Re/Max table gives a ‘% of monthly income’ value of 70%.

    If we look at the mortgage assumptions, we see they assume a 25% down payment. The article quotes Mr. Alexander talking about promising opportunities to enter the market. I am skeptical that, with a median after tax family income of $45,595 a year, many families looking to enter the market will have $185k in cash available for a 25% down payment. If we assume a considerably more achievable (though still a very significant challenge for the median family) value of 10% down, $73,860, that puts the monthly mortgage payments at $3,177, which is 84% of monthly take home for the median family.

    Property taxes in Victoria for a home assessed at the assumed sale price of $738,613 would be approximately $308 per month in 2020, taking the monthly spend to $3,485, or 92% of a $3,800 monthly income. Gas, water and electricity would likely run at least $150 per month, taking our total to 96%.

    Without accounting for any maintenance or replacement expenses, we see that the median family in Victoria would need to spend approximately ALL of their income on housing to afford the average sale price quoted by Re/Max, leaving nothing for food, clothing, transportation, etc. This is a dramatically different conclusion than the one outlined in the Re/Max analysis.

    It seems to me that the analysis by Re/Max is misleading. I would like to hear from Mr. Alexander or another representative of Re/Max if I am mistaken in my analysis or if I am misreading their Index. Failing that, I would like to ask BUILDING magazine to update the title of this article to better reflect the reality of affordability highlighted by this analysis.

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