Are housing costs out of reach in Canada for the average person? Absolutely 100%

We know, you must be getting tired of the constant rants news articles on real estate. While I am as well, I haven’t seen many publications break down housing costs with actual numbers.

So, I will take it upon myself to do so and show you just how unattainable housing costs have become in my native Canada, for the average household making an average income in 2023.

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Housing prices in Canada from 2019 to 2023

Check out these real estate news headlines along with the respective to see the dramatic and rapid rise (and fall) of home prices in Canada from 2019 through the start of 2023.

• The national average price of a home sold in Canada (July, 2019) was just shy of $500,000 (source)
• The national average price hit $816,720 in February, 2022 (source) just before the central bank unleashed a myriad of rate increases.
• The national average price fell to $626,318 by the end of 2022 (source)

Good news, right? Housing prices are elevated from pre-COVID era but down sharply from the start of 2022. Well, no. Not at all, it is still really bad out there for the average person.

Mortgage costs calculation: a simple example

Let’s compare an average home sold in 2019 at an average mortgage rate using data, compiled by Superbrokers. 

A $500,000 house (less $100,000, or a 20% downpayment which eliminates the additional financial burden of a mortgage loan insurance that ranges from 0.6% to 4.5% of the mortgage amount) means a new owner needs to finance $400,000 which translated to a mortgage payment of $2,278.84 per month (give or take).

Now, suppose this house appreciated inline with the national average and has a selling price of $626,318. An identical 20% down payment means the new owner has to come up with around $125,000 and finance the remaining $501,000.  Using an online mortgage calculator, a monthly payment of $3,113.70 is required to move into this average home.

To recap, a new homeowner in 2023 needs to fork over an extra $25,000 for a 20% downpayment and pay an additional $834.86 per month compared to 2019. No doubt, this is a steep increase and has pushed many potential buyers out of the market since 2019.

Is a mortgage affordable for the average household in 2023?

Here is what an average home at an average cost looks like near where I live. There is no doubt this looks like a lovely home to raise a family and create new memories. As a passionate home chef, the kitchen needs a complete re-do and I’m not confident I can continue hosting 10+ people over for dinner.

But hey, this isn’t too bad. In fact, it is… quite average. 

That said, let’s jump into the numbers.

The national salary average in Canada stands at $60,355 per year. This is gross income which equates to $41,453 after those pesky Canadian taxes. 

Assuming a two-person working home (again, everything is based on average), we can see very quickly that a household monthly income of $6,908 is nowhere close enough to afford this home. These are for the most part rough numbers so keep that in mind.

83% of the family’s income covers fixed living and housing costs alone. EIGHTY-THREE PERCENT! Even if this family doesn’t have a car, the reduction of $800 a month (nearly impossible for a family with children, but let’s go with it) in expenses only brings the ratio down to 72%.

Many experts agree househoulds shouldn’t spend more than 30% of their pre-tax income on housing costs. This is impossible as the mortgage costs alone in this example account for more than 30% of a pre-tax income.

There are of course many additional costs that represent a typical family budget that have been left out (education, entertainment, emergency repair funds, furnishing, clothings, vacations, savings, etc.) It goes without saying the remaining $1,144.3 in monthly income can’t be stretched to cover the remaining expenses.

Factor in rising food and energy costs and the housing portion of a budget will account for a higher percenetage of income over the coming years.

Oh, Canadian interest rates are likely going up again on Wednesday and aren’t expected to come down at any point in 2023? Guess these numbers are even more outdated by the time you read this and housing has already become incrementally expensive.

My wife will get mad if I end this article