Ontario’s housing market has recovered its past strength with rising home prices, however, too much of a good thing can become bad.
By that statement, I mean with the rising home prices, it has contributed to a decline in affordability for the first time since early 2008.
According to the latest housing report released by RBC Economics Research, homeownership has become less affordable.
What does this mean for you?
Well for home buyers, they have to now look at the fact that buying a home has not only becoming more expensive, but the cost of managing and living in the home has also risen.
In the Toronto area, the upward trend seen in the housing market has renewed the sense of urgency which fuels buyers to purchase homes more than ever.
With less inventory, resale activity has sky rocketed and prices have been pushed to near record levels.
As a result, affordability has suffered, with RBC’s Affordability measures for the Greater Toronto Area (GTA) rising between 1.0% to 1.9% in the third quarter of 2009.
Although the change does not seem much, it can affect a person greatly.
In Ontario as a whole, the RBC Affordability measure has risen in all housing types.
Affordability of the benchmark detached bungalow is now 39.4%; the standard townhouse is now 31.3%; the standard condo has reached 27.4%; and the standard two storeys home is now at 45.2%.
To allow you to completely understand, I will explain how the affordability reading works.
Simply put, the higher the reading, the more costly it is to afford that type of home.
For example, if you look at owning a condo, the standard condo affordability reading is 27.4%. This means that homeownership costs, which include mortgage payments, utilities and property taxes, will take up to 27.4% of a typical household’s monthly pre-tax income.
Keep in mind that this is only for homeownership costs, this value does not include any regular living costs, and not to mention any luxuries you may or may not have.
This only goes to prove that although the real estate market has greatly improved from the beginning of 2009, it can still bring about negative consequences for buyers.
Sellers, enjoy having multiple offers, bidding wars, etc., however keep in mind that when you begin to look for your own home, if you haven’t already, you will have to take into consideration homeownership costs, which as you can see, are slowly rising.