Are home prices ridiculously high in Toronto, Ontario?

You might have to accept apologies on this blog post because it might see somewhat like a rant. But seriously, how much money should Canadians be expected to pay for a home? How much debt should a family take on in order to have a home in a good neighbourhood in Toronto.

Perhaps some people will be able to relate to this post, perhaps some will not be able to relate. Feel free to leave your comments at the bottom. Here is the situation. A family with two children is looking for a home in a Toronto suburb. We have narrowed down our home search to a small neighbourhood that is a short walk to the train station. It’s a family friendly neighbourhood close to parks, schools and friends. This is where we want to live. This is where we have been looking for a home for sale.

In this neighbourhood, we are able to rent a small, but more than adequate home for $1,600 per month. No property tax to pay. No repairs to pay for, and the owners pay the water bill. So the costs to live in the neighbourhood we want to live in is $19,200 a year. That’s it. However, as everyone knows, Canadians have a unquenchable desire to buy a home. Seemingly, regardless of price. Us included. Despite renting, we would prefer to buy. We have been looking..

2 years ago, we bid on a “fixer upper” in this neighbourhood for $365,000. We didn’t get the home, but that price has stuck in our minds. Other houses have come on the market. We have looked at each one.

$450,000: Dismissed because there was no dishwasher, no family room, unfinished basement, and a tiny kitchen.

$575,000: Dismissed because the price was a little high, plus the home lacked a finished basement and family room (again!). Where do the children play if their is no finished basement and no family room?

$475,000: Almost perfect! A few streets away from where we wanted to be, but that was ok. What was not ok was the multiple 2cm cracks in the brink that went from room to foundation and from every window cil to the foundation. Didn’t really want to buy a home with structure issues. (especially for close to $500K!

$600,000: Perfect home. Newly renovated. Had everything we needed. Price was high. But we passed it up because it backed onto the commercial development fronting on the main street. Too much noise.

So here we are. Still renting. Still looking. Still evaluating each home that comes on the market in the neighbourhood in which we want to live. Another home just came on the market for $650,000. Lets consider it and do some ranting…

The starting place to rant is the “price”, plus this leads to the point of this blog: Housing prices are ridiculous in Toronto. Are we literally expected to buy a home for $650,000 because our friends have? Let’s assume the we have a $200,000 down payment and the mortgage on this home would be $450,000. This would include costs:

Mortgage interest @4% = 18,000 per year
Property Taxes = $4,000 per year

So immediately, this home is more expensive than renting. If renting is considering “throwing money down the drain”, then we throw $19,200 down the drain each year. But when we rent, we make interest on our $200,000 down payment. Therefore we only actually “throw away” about $15,200 per year. However, if we purchased this home, we would be “throwing money down the drain” in our interest and property tax costs of $22,000 per year. So buying this home costs us $6,800 per year more than renting. (Again that includes no mortgage principal repayment). Someone please tell me why we would buy a home for $650,000?

Who makes the kind of money that allows someone to buy a $650,000 home? Again, interest and property taxes are $22,000 a year lost. Gone. Hard earned money gone to a bank and the city. Our combined pre-tax family income is $150,000. With this we take home $8,000 a month. That means we take home $96,000 per year. Daycare is $25,000 per year. Car costs are $10,000 per year. RESP are $5,000 Monthly expenses (gas, food, entertainment, cellphone, internet, cable) are $30,000 per year. That leaves $26,000 for housing!!! I just told you that $22,000 will be thrown away in interest costs and property tax. This means that $4,000 a year can go to paying down my $450,000 mortgage? Are you kidding me? Will that not take 100 years to pay off? Saving for retirement is not accounted for in the above calculations.

I also think that that we are a frugal family and the costs outlined above would not be considered high or excessive. We don’t buy clothes. We don’t have fancy cars. This is the ridiculousness of the Toronto housing market. Who are the people buying the homes for $650,000? How big are their mortgages? Why are people paying these prices? You really can’t blame the sellers for asking, but you easily can blame the sellers for buying.

We are in our mid 30s. So to purchase a $650,000 home, we need to have a 35 year mortgage. This means that we are mortgage free at age 70 (With no retirement savings). And what is one parent loses their job? (Then we’re broke)Are you kidding me? Am I agreeing to pay more than $35,000 a year to live in this home for the next 35 years? I’m going to have a $2,500 a month mortgage payment when I’m 69 years old?

Every day there are reports from banks real estate associations, and newspapers. Some days these reports say that the Canadian home market is overvalued, some days affordable. Some days the reports say market is going to crash. Other days it’s going to slowly grow each year. Regardless of what the reports say, it’s evident from looking at the average family income and the average price of a family home, that Canadians are mortgaging themselves to the max. The above example was for a $650,000 home. This doesn’t change too much for a $600,000 or $500,000 home. Regardless these are high amounts that come with accompanying large mortgages. Does anybody else look at where their money goes? How much goes to interest costs? how much goes to banks? Taxes?

Just curious.

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