How Much House Can You Buy on Your Salary Right Now?
Living in your own home provides independence and, hopefully, happiness. Unfortunately, the rising cost of real estate discourages many from doing so.
But the affordability of some areas may surprise you! There’s nothing like a concrete plan to make your dreams come true, making them accessible step by step.
The cost of homes in Canada
The average home sells for $644,643 in Canada, according to The Canadian Real Estate Association (CREA). In Quebec, the average price is $475,577. In Ontario, the average price is $835,090, while in Saskatchewan, it is $324,900. These figures hide great disparities.
You know you won’t find the house of your dreams in Montreal at a low price! But in Trois-Rivières, you could get something very nice.
Big cities versus the Prairies
Are you a city rat or a country rat? Your preferences definitely influence your ability to buy a home. In Vancouver, you can easily pay over a million dollars! According to a recent survey, the median household income in the region is just under $100,000. It is, therefore, one of the cities where it is difficult to find a place to live on a standard salary. The same scenario is repeated in Toronto.
As for the beautiful Canadian Prairies, they are a much more affordable market. That’s a bit far for you? In Quebec, markets outside the greater metropolitan area are still accessible. You have to keep an open mind and visit these places before deciding whether or not you want to live there.
Sufficient income to buy a home
Median income refers to the middle of the income distribution. This means that half of all people earn less than this amount, while the other half earn more. The median after-tax income in Canada was $66,800 in 2020, the latest year for which Statistics Canada data is available.
The highest incomes were in Alberta, at $77,700. In Quebec, the median income was $59,700. Is this enough to buy a home? To find out, you need to know the price of the house you want and your ability to pay for it, considering your overall personal situation.
Your financial capacity
Financial institutions usually use your gross income (before taxes) to calculate your mortgage capacity. They grant an amount representing up to 32% of your gross income. They also consider other debts, such as credit cards and personal and car loans.
Your debt ratio should not exceed 37 to 40% of your gross income. For a home, however, the ideal is no more than one-third of your net income (after taxes). This allows you to continue saving, for example, in an RRSP, and to enjoy life without cutting back on your outings and travel.
Here is a table summarizing the average house value by city, the associated monthly mortgage payment, and an estimate of the net income needed to pay for it. Be aware, however, that it is possible to take on more debt than shown in this chart.
To better understand the income you will need, you should consult a financial planner or an advisor at your lending institution. Some things to consider are the size of your down payment, taxes, and adding property taxes and other fees to the cost of the home.
| City | Value of the house ($) | Monthly mortgage payment ($) | Approximate annual net household income ($) |
|---|---|---|---|
| Montréal | 679 750 | 3 163 | 115 000 |
| Shawinigan | 199 500 | 928 | 33 000 |
| Vancouver | 1 148 900 | 5346 | 193 000 |
| Regina | 317 800 | 1 616 | 58 000 |
| Ottawa | 630 800 | 2 935 | 105 000 |
* The table was built from a mortgage simulator. It is based on a down payment of 20% and an interest rate of 5%. The mortgage payment is approximately one-third of the net household income. This is a conservative estimate, as it is possible to take on more debt. House price figures are from Centris (single-family homes, Montreal and Shawinigan) and CREA for October 2022.
How do you know if you can afford your dream home?
In a fast-paced market, seeking the help of a real estate broker from the start will point you in the right direction. In addition, you may be asked to obtain a mortgage pre-approval from a bank or credit union.
This pre-approval indicates the maximum amount the institution will lend you to buy your home. It, therefore, gives you crucial information about your borrowing capacity.
