The real estate market is one of the most predominant sectors of activity in Canada. In as much as owning a house was considered the American dream and now more of the Canadian dream, this dream comes with huge financial decisions and compromises. There are a lot of families stretching themselves thin to get into the market. There is an increased premium on housing which is going to have enormous economic consequences.
Something commonly said now is that Toronto families don’t make enough to support home prices. This has been repeated over and over on media by bank executives, economists, fund managers and real estate agents. A quick poll actually shows that there is a good chance that this market may be supported by local incomes.
Regression to the mean is one of the strongest rules in finance. This rule makes this market unhealthy. To balance the equation, any sudden rise in prices will be followed with a proportional downtrend that might be hidden sometimes by an inflation and devaluation of a currency, not always visible at first glance.
According to the Toronto Real Estate Board (TREB), 19318 houses were sold over a million dollar last year. This number is soaring. This accounts for an increase of about 77% from the year before, about 17% of the whole TREB region’s total sales.
A family needs to make at least $150000 to support a million dollar home. The minimum down payment a million dollar house requires is 20%. So you can a mortgage of $850000 at a qualifying interest rate of 4.64% adding to that the down payment, you have the ability to buy a house at over $1050000. The question now is to know how many households in Toronto make over $150000 annually. Canada’s latest statistics on income say a lot of households meet that target.
The statistics estimated that 11% of households in Toronto made over $150000 after tax in 2015. This means 264110 families had the means to buy a million dollar house in 2016, a 17.98% increase from 2015 which means 40259 families joined the one million dollar house crew.