While $100,000 might have been more than enough to get your foot in the door of the housing market 10 years ago, a new report reveals that today’s homebuyers need to save a lot more to put in a significant down payment.
A new report by the Canadian brokerage Zoocasa compares how much of the principal a $100,000 downpayment covered in 2015 and now, revealing the increasing difficulty of joining the real estate market today.
According to the study, over the last eight years, the median income after taxes for Canadian families grew by 32.5 per cent, from $56,000 to $74,200. But that doesn’t mean potential homebuyers now have it easier when buying a property.
While paycheques might have increased, so did the cost of living, as well as home prices, which means that $100,000 in savings cannot get you as far as it once did.
In 2015, the average price for a home in the Greater Toronto Area (GTA) was $639,184, which meant that a $100,000 down payment would cover 15.6 per cent of the total cost for that property. However, with the average home price at $1,101,691 this year in the region, the same down payment would only cover 9.1 per cent of the total cost.
For other cities in the region, the difference is also significant. While $100,000 covered 17.7 per cent of the total home prices in Mississauga 10 years ago, that only covers 10.1 per cent now. The difference is even greater in Brampton, where it accounted for 21.6 per cent of the home in 2015, compared to 11 per cent this year.
Even if you are saving for a condo, chances are it will also take you longer to pay off your property. While in Toronto 10 years ago, the payment would pay off more than a quarter of the average $394,504 condo. Now, it only covers 14.6 per cent, as prices have almost doubled to $684,257.
In Vancouver, where home prices are the highest in the country, $100,000 would cover 10.8 per cent of a home’s average price of $922,326 in 2015, but now, with the price up to $1,275,785, it only accounts for 7.8 per cent of the cost.
The cheapest markets of the country are also feeling the difference. In Saint John, N.B., an average house was valued at only $159,487 in 2015, with a $100,000 down payment covering 62.7 per cent of its total price. With the price now standing at $389,945, the same amount would now only cover 25.6 per cent of the total cost, a difference of almost 40 per cent.
HIGHER DOWN PAYMENTS PRICING OUT FIRST-TIME BUYERS
GTA-based realtor Michelle Glasgow tells Now Toronto that a decade ago, the biggest challenge for homebuyers was saving for a down payment, as mortgage payments often were the same or cheaper than the average rent.
“For years, the standard minimum down payment structure in Canada was five per cent on the first $500,000 of a home’s purchase price, and 10 per cent on the portion above that, up to $999,999,” she explained.
But now, homes in the region for $500,000 have become a rare find and mortgage payments are rarely lower than the average rent, forcing buyers to have to save more before making the decision to purchase.
With prices above $1 million, buyers are now required to have at least 20 per cent of the total cost for a down payment.
While in the 2010s, a $100,000 down payment would come a long way, paying off a great load of the house prices, but now homebuyers need to be more prepared.
“The average home price in the GTA is just over $1 million, therefore they would need to have about $80,000 for a down payment, and then 1.5 to two per cent of the home price for closing costs,” she adds.
