Rising house prices and the effects on millennials
August 21, 2015
Shocking news: house prices are on the rise! In major cities across Canada, like Vancouver, Toronto, and even Ottawa, house prices are reaching well into the millions. You want a single-family home downtown? Hopefully you’ve won the lottery recently!
According to the Canadian Real Estate Association (CREA) the national average price for homes sold in June 2015 was $453,560, which is up 9.6 per cent from last year. That doesn’t seem too bad; however, this figure is a misrepresentation of what is actually happening across the country. When you remove sales from the major cities such as Greater Vancouver and Greater Toronto, the average is actually $346,904.
So why are house prices rising anyways? And why are homes so expensive in these major cities? Between the years 2000 and 2009, house prices rose by 49 per cent, and then rose another 17 per cent between 2009 and 2014. Canadian Mortgage and Housing Corp. (CMHC) attributes this rapid growth to low interest rates and major economic growth across the country, specifically in these large cities.
The number one question on most peoples’ tongues: How are Canadians affording homes? Let’s examine the facts. The average price of a single-family home in Toronto is now more than $1 million, which means your monthly mortgage payment will be around $6,000. But wait. According to the 2013 tax returns, the average personal income in Toronto is $69,000, making the household income $138,000. That doesn’t add up.
The same discrepancy can be found in all major cities across Canada, the worst in Vancouver where the average home sells for $1.2 million, and the average income is only $49,000 (according to the 2009 census, so yes, things have changed in the past six years, but drastically enough to enable these residents to afford a $7,000 monthly mortgage payment?). Ottawa is more reasonable with an average household income of $93,000 and an average home selling at $500,000.
With the rising house prices, no one knows better the stress of home buying than millennials. For example, there is a couple in Ottawa who went to look at a home downtown priced at $500,000. The house was rundown and located directly next to a major highway. It was a small home, and already way out of their price range. The kicker? In 1999, the owner purchased the same house for $80,000. This story isn’t unique.
As a solution, many millennials have opted to rent. Renting is the best way to live in your desired area while simultaneously lessening the burden on your pocketbook. Yet, according to RealtyTrac, buying a median priced home is actually cheaper than renting a three-bedroom property in more than 67 per cent of the 473 U.S. counties analyzed. The problem is, the only place to find a median priced home is in the suburbs where it is harder to find someone to rent a room from you. Many millennials rent in the downtown core, but are able to split the total cost with roommates.
Newspapers and experts alike seem to be sending the same message: Houses are ridiculously expensive, and millennials are screwed. Yet, it’s not all bad news. Many experts have stated that the market is bound to level out at some point. So if you’re renting, continue to save up for that down payment, and wait it out.
Top Image: Fast Company
About Lindsay Foran
Lindsay has lived in the Ottawa/Gatineau area her whole life. When she's not touring the city in search of the hottest new neighbourhoods she's busy writing fiction and enjoying life with her husband and two dogs.