30 May 2016

Rent vs. Buy: Can You Afford a Condo in the City?

Posted by Andrew Dybenko

With degree in hand and memories of an epic travel experience, it’s time to get started on this life thing, so you set your sights on a dream job and a place to call your own. It always starts a little rough, rooming with a few people and serving at a restaurant isn’t exactly the stuff dreams are made of, but hey, it’s a start (and let’s be real, can be a lot of fun). Eventually you do land a job that seems promising and you feel like a grown up who really wants to live solo. So off you go to find an affordable (hopefully 1 bedroom) apartment in a very expensive city. It seems near impossible, but you make some compromises, like living in a basement apt, or maybe keeping just one of those roommates. It occurs to you that if renting is this tough, how will you ever afford to buy??

I recently had a client who purchased a condo after about a year of renting in the city. The process made me reflect on the rent vs. buy debate, so I wanted to share the logic behind what led to his purchase of a 500 square foot condo in Corktown (King East) for $274,000. Spoiler: it is more expensive to Buy, BUT it’s also attainable and here’s why it can make a lot sense. Below is a breakdown of my client’s cost to rent vs. buy:

Leslieville Basement Apartment 500 sqft Corktown Condo, $274,000 Purchase Price
Purchase 5% Down Purchase 20% Down
First/Last Deposit 2,100 Downpayment 13,700 54,800
Closing Costs 2,858 2,285
Total 2,100   16,558 57,085
Rent 950 Mortgage 1,190 1,004
Property Taxes 0 Property Taxes 147 147
Maintenance Fees 0 Maintenance Fees 217 217
Utilities and upkeep 100 Utilities and upkeep 200 200
Transit 130 Transit 50 50
Gym and Pool Use 50 Gym and Pool Use 0 0
Monthly Cost 1,230 Monthly Cost 1,804 1,618
Monthly Equity Gained 0 Monthly Equity Gained 650 550
Monthly Expenses 1,230 Monthly Expenses 1,154 1,068

First off, to get into the market, you do need some cash in hand, about $16,500 (5% down payment + closing costs) in this case. So while you’re living in this basement apartment (or in my case, my uncle’s attic) make sure you are saving those pennies. Better yet, share this article with Mom and Dad and get them on board. Tell them that this down payment is all you want for Christmases and Birthdays for the next 20 years, they’ll go for that, right? What makes these two scenarios so comparable is the equity gained. It may seem like your living costs jump $600+ once you purchase, but $600 of your mortgage payment represents your equity, so that jump is actually offset.

A few things to note, firstly, my client moved within a walkable distance to work and will save on transit at least half of the time. He also values the amenities offered in his condo, like the outdoor pool and gym. When you factor in the equity he’s gaining, buying is the better option, not to mention the improvement in his quality of life – the guy’s living in a new condo complete with an awesome balcony and outdoor pool, instead of a basement apartment. If you were to rent a similar condo unit, you would be paying $1,500/month + utilities which makes renting an even less appealing option when you consider that there would be no equity gained.  

I should mention that the breakdown above hasn’t accounted for transaction costs, like the legal and realtor fees paid when you sell, or mortgage insurance which is required for purchasing with less than 20% down. When the time comes to sell, you are going to want to recoup 5-6% (of the purchase price) in transaction costs if you’ve put 20% down, and 9-10% when you’ve put 5% down. I also realize that you could have success investing your down payment and the $600 equity/savings amounts elsewhere.

The reason I wanted to write about this topic is because when I’m talking to young professionals, the sense I get is that they feel like they’ll never be able to buy. There tends to be to focus on the big numbers, like the down payment and your mortgage payment. And yes, your cash flow should be a consideration. If you can’t make it work, then you can’t make it work, but if you’re renting for $1000 and putting away $600 a month, then this is a realistic scenario for you. And if you are renting something similar for $1,500/month, stop and think about how much equity you are losing out on. If you think the market is likely to appreciate 2-3% / year over the next 5 years, purchasing a condo might be more attainable and sensible than you thought. 

Have a question? Want to run some numbers? Drop me an email at

27 Apr 2016

The Fashion District

Posted by Andrew Dybenko

The Fashion District, also know as the garment district, was named for its area’s role in the garment industry in the early 20th century. Bordered by Queen + King to the North + South, and Spadina + Bathurst to the East + West, the area has been a part of some major gentrification happening in the west end of the city. With super easy access to downtown + uptown, and a bevy of culture + entertainment right on your doorstep, it’s no wonder this area continues to grow. While there’s still a handful of fabric stores to give credence to its name, the area has so much to offer. Here’s quick guide on what’s happening in the Fashion District:

Where to Eat: This is by no means an exhaustive list; there are just too many options. Lunch: Kupfert + Kim, Jules, Fusaros, Fresh, The Burger’s Priest, Lunchbox Sushi, Avenue Open Kitchen (on Camden) + Le Gourmand. For dinner (or lunch if you’re fancy): BucaWestlodge, Brassai, Gusto 101, Valdez + Tutti Matti.

Gusto 101 Restaurant.

Gusto 101 Restaurant.

For Coffee: Jimmy’s Coffee, Portland Variety, Starbucks, + they even have a good ole Timmy’s at Spadina + Adelaide.

Jimmy's Coffee. Image c/o BlogTO

Jimmy’s Coffee. Image c/o BlogTO

For Groceries: there’s a Loblaws that’s walking distance (Queen + Portland) + Fresh + Wild (Spadina + King), not to mention that Chinatown is a very short walk. Technically not groceries, but could be considered a major food group, there’s an LCBO at the corner of Spadina + King.

Fresh + Wild

The selection at Fresh + Wild.

For Everything Else: Ladies, the women’s only water spa, Body Blitz, is right at Adelaide + Portland. Yoga Tree + Barreworks are close by for those who bend. And the Nike Loft is located on Richmond for all the runners out there. Enjoy some green space at Adelaide + Brant, and Spadina + Wellington. For music lovers, the Cameron, The Riv + The Horseshoe are all within stumbling distance.

Barreworks c/o Instagram

Barreworks c/o Instagram

Cameron House. Image c/o BlogTO.

Cameron House. Image c/o BlogTO.

To Shop: For the home, you’re in a good spot – CB2, Morba, Urban Barn, Home Sense + Design Republic just to name a few. For fashion, you’ve got the main guys – H&M, Urban Outfitters, Club Monaco, but also a TON of great boutique shops along Queen for both fashion + home.

CB2 + Design Republic. Image c/o BlogTO

CB2 + Design Republic. Image c/o BlogTO

As far as properties go, the Fashion District is largely made up of condos. It’s worth noting that buildings in this area generally do not exceed 15 stories, so you can still enjoy the sun when you hit the streets. And not all condos are equal. Yes, there is your fair share of smallish units (especially just outside of the district’s boundaries), but keep a eye out for those hidden gems. Like this almost 1500 sqft, 2 +1 bdrm, 2 bath property for only $699,900. This is the perfect place for families starting out, small families or even as an investment property. You are steps away from everything you need with plenty of space at home. Living urban does not always mean living small.

Did we miss you favourite Fashion District must? Make sure you let us know in the comments below!

06 Nov 2015

A Newcomers Guide to Toronto’s Real Estate Market

Posted by Andrew Dybenko

New to Toronto Real Estate?  Here are 5 things you should know when starting your home search.

Real Estate Commission for both the Seller’s and the Buyer’s Realtor are paid by the Seller: In Toronto, it is the norm for Home Buyers to use a Real Estate Broker for both Buying and Selling their home. In other international markets, a Buyer agent is not as popular (although gaining popularity in some markets like Australia), but in Toronto where the Buying Agent’s commission is commonly paid for by the Seller, Buyers typically choose to take advantage of this service. The way it works is this: a Seller enters an agreement with their Real Estate Broker (and their Listing Brokerage) to sell their home. In this agreement, they outline how much total commission they will be paying, and how much commission the Brokerage representing the Seller is to offer the Agent representing a Buyer. If the Buyer has no representation then the commission set aside for the Buying Brokerage would typically go to the Seller’s Agent. Why wouldn’t you want someone working on your behalf when someone else is picking up the tab? Buyer representation became popular in the 1990s when the industry realized that no one was looking out for the Buyer’s best interest, and it has become the standard in Ontario ever since. Those who choose to work directly with the Listing Agent should recognize that the listing agent has committed to working on the Seller’s behalf and will be trying to obtain the highest possible sale price for the property.

The List Price is a Starting Point:  In Toronto’s frenzied real estate market, the price a property is listed at is often not representative of what it should sell for.  Properties are often priced simply to get would-be Buyers through the door and encourage as many offers as possible.  Others are priced way above market value in hopes that an uneducated Home Buyer will blindly give them their asking price. Sometimes you’ll see failed offer night strategies where a home is listed low for multiple offers, but then listed higher the next week when they don’t get the price they were hoping for. When offering on a home, your Realtor will be able to advise you of what a fair price is based on analysis of recent ‘solds’ and the numerous comparable properties that they have been through.

Focus Your Online Home Search: How many sites do you look at when searching for your next house? There are many Real Estate websites that offer a list of featured properties and have the ability to search available listings, though most of these listings actually belong to a different listing agent. Most people don’t realize that homes they see on random Real Estate sites are most likely either already on, about to come on, or already sold. Even homes being sold directly by an owner are now typically listed on  So don’t get overwhelmed and stick to for your property search.  Or better yet, have us set you up with a customized daily property match for all homes that come on the market matching your search criteria. And if you hear the term MLS (Multiple Listing Service), this is just the old name for that is still commonly used today.

Know Your Market: Condo vs Freehold:  It’s true that Toronto’s condo market has shown healthy growth and remains quite competitive; however, the condo market has a much larger inventory of supply than Freehold properties making the two markets vastly different. Competition for Freehold properties is fierce. Supply never seems to be enough to satisfy demand, particularly in Toronto’s most popular neighbourhoods. In Toronto’s condo market, it’s more typical to see a downward price negotiation, and if the property isn’t priced for a quick sale, you likely have more time for your due diligence. Securing a freehold property for, at, or below market value requires you to be ahead of the game and your due diligence to be done on the fly.  Strategy and speed are important in a market that typically sees houses sell in a week or less.

Toronto in a Nutshell:  The GTA is made up of over $6 Million people and hundreds of neighbourhoods.  The city proper is divided by Yonge St.; this central corridor is the heart of Toronto and home to the majority of Toronto’s highest priced properties.  Toronto is surrounded by Durham Region to the East, York Region to the North, Peel Halton to the West and Lake Ontario to the South, forming what is referred to as the Greater Toronto Area. As you travel about 10 km outside of Toronto’s downtown core, the city is made up of inner suburbs with Scarborough to the East, Etobicoke to the West and North York to the – you guessed it – North. There are many things to take into consideration when choosing your ‘hood. Much of it has to do with what lifestyle you want to lead, how much do you want to commute,  where do you want your kids to go to school, not to mention affordability. A Realtor can help you determine which neighbourhood makes most sense weighing both lifestyle needs and financial planning objectives. Affordability is an on-going consideration; for example, the east end of the GTA has the most affordable purchase prices, but you might end up paying twice as much in property tax.  Navigating the bigger picture is where a Reatlor’s experience and knowledge comes in handy, giving you the proper information you need to make a good decision.

15 Sep 2015

6 Steps To A Better Home Purchase

Posted by Andrew Dybenko

Have you ever found yourself stuck on the sidelines watching house prices soar out of your reach? Did you just lose out in your 7th offer night? Have you outgrown the home you just recently bought?

What is it that makes finding a great home so easy for some people and so difficult for others?

Purchasing a home is a big decision and can cause a great deal of stress, especially when done incorrectly. Without the right guidance, Buyers often feel overwhelmed leaving them on the sidelines or regretting their decision to purchase a home that doesn’t make sense for them. As a child, one of my Dad’s favorite spots for a family dinner was the Pickel Barrel. This restaurant has a massive menu and a seemingly endless number of meal choices. Spending 10 minutes deciding between these 300 menu items made me question my choice and lead to a bad case of food envy (I take my food seriously, folks.) This is one of the reasons this tradition does not carry on with me and my kids. Although some level of choice is crucial for happiness, too much can feel overwhelming.

Good decisions are often made when we allow the situation to guide us. The more experience you have with a particular type of decision, the safer it is to go with your intuition. When Buying a house, the number of choices can be overwhelming. To help clients avoid having home envy, we have come up with a guide for better Real Estate decision making. After all, purchasing a great home is simply a result of making a great decision.

See below for’s 6 rules to better home buying decisions:

1. Identify a Realistic End Goal
Understanding market conditions and neighbourhood prices are essential to creating a realistic vision of your desired purchase. If you have an unrealistic vision of where and what your home should look like at what price, you are never going to feel comfortable making a purchase. Describe your desired home in detail and have your Broker show you recent solds (not active listings) which meet your criteria. If they don’t exist, you need to change your location or the vision of your dream home.

2. Setting Standards
Identifying your wants and needs is key to finding a home that will make you happy. Think ahead and ensure your purchase will meet your needs for the amount of time you plan on owning the home. For example, you may plan on growing your 2 person family to a 4 person family in the very near future. A house to grow into and school districts should be a consideration.

3. Don’t Get Caught Up with Finding the “Best”
Emotions can get the best of us; the need to win or get the best house leads to bad choices. You often see this when people get carried away in multiple offer situations and overpay for a home.

4. Be Aware of Biases
Being well informed with upfront and honest advice is critical to good decision making. It’s important to be aware of where biases exist, both your own and those of others. For example, a listing agent has a bias to the Sellers, so their advice may not be in your best interests.

5. Try Not To Rush
Making a rushed decision can lead to regret. Home buying is a process, practice patience and trust the process – you will be happier in the end.

6. Don’t Sweat the Small Stuff
With home buying, your focus should be on features that you can’t change. Home and lot size, layout and location are either expensive or impossible to change. Loud paint colours and outdated décor, while sometimes difficult to look past, can be easily updated. Don’t get overwhelmed by low impact items.


Photo Courtesy:

Decision Making Steps Courtesy: Catherine Price

28 Aug 2015

Will Stock Market Volatility Impact the Sale of Your Home?

Posted by Andrew Dybenko

Are you planning to buy and sell a property in the near future? Deciding whether to buy or sell first can often be a tough decision. As the Canadian economy enters a precarious time and stock markets continue to tumble and recover, home buyers and sellers should be mindful of how this volatility might impact their purchase and sale.

Home Buyers needing to sell a property in order to close on their purchase should be paying particular attention. A short dip in stock markets often has no impact on Toronto’s Real Estate market. However, if you combine this volatility with increased recession chatter, consumer confidence could be impacted enough to reduce the number of active home buyers. Buyers may begin to question large purchases and consider waiting to see if a better bargain is around the corner.

Vacationers return to Toronto in droves by the beginning of September. This drastically increases the number of active buyers compared to August, typically making September a more appealing month to list your home. Time will tell if September will be a better month to list than August this year, and supply will likely have the biggest impact on prices. Many agents seem to be encouraging clients to list now to avoid the increased competition in September (active listings are up about 5% from the same time last year).  We live in a city where a big part of the economy comes from financial services. If stocks take a beating and don’t recover shortly after, both consumer confidence and their pocket books are impacted. Higher priced homes are the most volatile as buyers in high price points are more likely to have earnings tied to stock markets.

It’s smart to pay attention to what’s happening with the economy and adjust your home buying/selling plan if needed. Volatility should be one of the main factors that you consider when you are determining whether to buy or sell first. The more volatile the market, the more risk that you won’t be able to fetch your ideal sale price. For other factors you should be weighing, check out my post from last summer on how to decide whether to buy or sell first.

29 May 2015

Neighbourhood Exploration: What is it about Willowdale??

Posted by Andrew Dybenko

When you get a group of people from across the city in one room, talk often turns to Real Estate, both the insanity of Toronto’s market and the unwritten divide that exits in Toronto. People are either East Enders or West Enders, with Yonge St being the dividing line. Torontonians tend to stay in their corner of the city, taking comfort and pride in the familiar sights and sounds. Unfortunately, this thinking really limits your Real Estate options. It’s fair to say that if you are unfamiliar with or have never visited a particular neighbourhood it’s unlikely to be on your radar, but being open to all the city has to offer helps to avoid buying and paying more than you should in an overheated area. I have never found myself with any allegiance to the east or west end, but for those of you that get anxiety crossing over Yonge St, the thought of moving North of the 401 might send you into deep sweats. So let’s explore what is it about Willowdale that makes it such a desirable place to live for so many Torontonians.

Willowdale is considered downtown North York, and for many, the appeal is that it’s located smack dab in the middle of the GTA, bordered by Finch to the north, Bayview to the East, Bathurst to the West, and Sheppard to the South. Previously a suburban area north of Toronto, construction of the Yonge St. subway eventually led to a boom in condo development surrounding the Yonge St. corridor. As a result, freehold properties in surrounding areas have increased substantially in value. The average condo in Willowdale sells for just under $400,000 and you can expect to get a about 10-20% more space than what you would find at the same price point downtown. The inventory of detached homes in Willowdale  is different from what you will find in neighbourhoods located closer to Toronto’s core, but don’t expect any price discounts. Willowdale attracts many of Toronto’s most affluent newcomers. In 2015, the average bungalow in Willowdale West has been selling for $1.1 M while a Detached 2 -storey will set you back $1.6M+. The West side of Yonge seems like a deal compared to the East where Bungalows have been averaging $1.3M and Detached 2-storey homes have been averaging almost $2 M this year.

So who is buying in Willowdale and why? The top languages spoken in Willowdale, aside from English, are Persian, Chinese, Russian, and Tagalong. Many Buyers find Willowdale appealing because you can find large recently built or brand new detached homes with lots ranging from 30’ to 60’ in width. The freehold inventory in Willowdale is made up of newer homes often with 3000 or more square feet and modern finishings. In the end though, it’s the home’s age and frontage that play the major role in the final sale price. The newer builds offer home buyers minimal maintenance compared to many of Toronto’s neighbourhoods to the south. These large houses often house extended families.  The price tags are high, but the buying process is much less intense than Toronto’s southern neighbourhoods. Offer nights are not the norm these higher priced homes, and although they often sell close to asking price they might sit on the market for some time before finding the right buyer. Willowdale is quite walkable with a diverse array of restaurant options all along Yonge St. It’s transit friendly especially if you find something in good proximity to Yonge St. and most of the schools are well-ranked.

Willowsdale may or many not be the right option for you, but exploring what other neighbourhoods have to offer can lead to a better purchase. Before you even start looking at properties, it’s a good idea to have your Realtor do some neighbourhood analysis and recommend areas that match your price point.  Have your Real Estate Broker send you ‘solds’ for similar priced properties across the city, and go visit a park, community event, or public space in a new neighbourhood to get a feel for all the city has to offer.

21 May 2015

The Intricacies of Deciding When To Sell Your Home

Posted by Andrew Dybenko

The smell of fireworks has barely cleared the air and the number of new listings hitting the market this week compared to last is piling up. Active Listings in Toronto are currently 11% higher than they were on Monday and 15% higher than what they were 3 weeks ago. Often realtors discourage listing leading into a long weekend, and although this advice holds true for some properties, it shouldn’t be a hard and fast rule. After all, the rules of Real Estate are constantly changing. It wasn’t too long ago that holding an offer night in an area like Pickering would have been considered absurd by most agents, but this spring it has become fairly common practice.

Not listing prior to a long weekend has become an unwritten rule and usually results in a large increase in listings the following week. And while it’s true that some buyers have dashed off to New York, gone fishing, or have turned the weekend into a never ending bender (aka gone fishing), many home buyers stayed local hoping for an extra day to put towards their home search. Those dedicated Home Buyers staying in the city were likely disappointed with their lack of open house options.

The dramatic increase in listings that we are seeing this week could spell disaster for some Sellers, leaving them questioning what went wrong when they fail to attract the desired sale price for their home. Sure, if you have the most desirable home in your neighbourhood the increase in competition is unlikely to impact you; competition for those properties is less of a concern and exposure to a maximum number of Buyers is more important. For everyone else, the fact is Home Buyers are only able to give consideration to a limited number of properties in any given week. When you list on a week with a lot of inventory your offer night will attract fewer Buyers since they are spread out over multiple properties.

Opportunistic Buyers should take note of the increase in inventory and aim to see as many homes as possible this week. Those waiting for the summer or late fall months, where the average price for a home tends to be lower than the busy spring, might be surprised to see value in quality spring listings. Your Realtor can’t always predict how many listings are going to hit the market on any given week, but a little analysis, care, and strategic thinking should help you list your property at a more opportune time, leading to a higher sale price. Sellers should make sure their Broker gives proper consideration to these market dynamics. Staging is often seen as the top priority when selling, but I would argue that strategic guidance and analysis from your Realtor can be equally as important.

10 Apr 2015

Don’t Have Kids? Don’t Want Kids? Don’t Even Like Them?

Posted by Andrew Dybenko

The thing is, kids or no kids, schools need to be on your radar when buying or selling.

What are your memories from Kindergarten? Playing in the sandbox, maybe your first crush, your first sleepover at a friends house, and who can forget Doug – glue eating champion. For many school boards, Kindergarten registration took place the past couple of months, and while Kindergarten is a simple time for kids, it tends to send many parents into a frenzy questioning whether they are sending their kids down the right path. It may surprise some people to know that this decision on where to send kids to school actually has a huge impact on people’s real estate choices. 

It’s not uncommon to see a home on one side of the street sell for 10% higher than the other simply because it falls into a different school boundary. If you arent paying attention, you could end up over paying to be on the wrong side of the street, or undervaluing your property because you failed to consider school boundaries. 

Schools are a major factor in many peoples minds when deciding when and where to buy or sell, and if you aren’t thinking about it, you should be.  Take my friends Jeff and Nish for instance, they purchased their first home about 8 years ago prior to having 2 adorable little girls, one of whom will be starting kindergarten for the first time this fall.  At the time they purchased (unfortunately for them with a different Broker, pffft), school quality wasnt on the radar.  Little did they know that if they purchased one block East, they would have bought in a better school district. Not a big deal right? 8 years is a long time in one house, maybe its time for a move anyway.  As someone who makes my living off people moving, Id like to say no big deal, but moving is a big deal. Whenever possible I encourage my clients to purchase for the long term because moving is expensive and a hassle.  Land transfer taxes, legal fees, marketing and realtor fees, and moving costs add up to tens of thousands of dollars.  Nish has taken to writing pleading letters with the principal at the better school district to allow them to enter, but they are now on the hunt for a new home in a better quality school district.   

Maybe you are of the notion that school quality will change for the better as the neighbourhood does. My wife and I fall into this category; we did think about schools, a lot, but decided to hope for the best. We bought on a street where every second house has 2 kids under the age of 6.  Frankly, if you dont have a 3-6 year old and a baby or at least the intention to have one, you will feel like the odd man out on Woodfield (thats what us wannabe cool parents tell ourselves anyway). We bought in Leslieville with our 1 year old daughter in the Duke of Connaught school district (one of the worst ranked schools in Ontario). We knew about the poor school quality and anticipated positive changes in the school, a reflection of the positive changes happening in the neighbourhood.  After all, our neighbourhood’s income levels are increasing, we have a limited number of rental properties in the area, and many of the homes that fall into Dukes boundaries are suitable for growing families; three correlations that generally lead to better rankings in school quality. While house values have increased above the city average, we have yet to see a change in school quality, sigh.

The challenge we are seeing is that families in our school district are apprehensive to send their kids to such a poorly ranked school and start to look at other options.  Some neighbours are considering private school, which means spending an additional $1,600 a month per child, other people will skirt the system by using a relatives’ or a rental property address to get them into a better district. We have considered other options ourselves. Part of the reason my wife and I sent our kids to an all French daycare was so that we had an alternative plan in place, allowing us to send our kids to a well ranked French school in the area, instead of our not-so-highly ranked home school. It doesnt matter how many amazing people you have in your neighbourhood, if you dont buy in and commit to change, its not going to happen. We love our community and continue to see our neighbourhood grow, improve and appreciate. But if we ever want to see home values catch or pass other top-ranked neighbourhoods, a better ranked elementary school seems to be a missing part of the equation. And yes, school rankings are just a small measure in determining what makes a great school, but it’s often the only measurement rushed home buyers consider.

We have decided to be part of the change to improve our local school and hope others join. For us, the benefit to higher school rankings is more about our children obtaining a better education, but better rankings will benefit the community as a whole, and whether you have kids or not, it will lead to higher appreciation in home values.  So kids or no kids, when you go to buy or sell your next home, make sure you give proper consideration to the school district.

02 Apr 2015

Are housing costs more than they were in 1985

Posted by Andrew Dybenko

Anybody who reads this Blog probably knows that I don’t like it when people sensationalize Real Estate news, and that I prefer to look at past results to help us make better decisions. Which is why I love this article by Jason Heath in the Financial Post on whether homes cost more now than they did 30 years ago. This is a great read that goes nicely with my recent post on whether Toronto Can Afford Million Dollar Homes. It provides a great comparison to what home buyers were facing in the 1980s and looks at Toronto specifically which helps readers digest information specific to their location.

We are often inundated with simple data and bold statements which, I think, leads to great misinterpretation. For instance, our Bank of Canada Governor made headlines in December stating that Canadian home prices could be seen as overvalued by as much as 30%. Many people could have immediately taken this information and localized it; for Toronto Home Buyers, this might have created the expectation that home prices were due to drop in 2015. In actuality, the opposite has happened in Toronto as we see home prices – especially for single family detached homes across the GTA – continue to head higher and higher.

Toronto’s Real Estate industry produces some great headlines, but knowing that a home attracted 25 offers or sold for $200,000 above asking price provides less market insight than you think. Even headlines coming from the experts can be misguiding if we don’t look into cause and effect.

13 Mar 2015

Can Toronto Afford Million Dollar Homes?

Posted by Andrew Dybenko

By now you have probably heard that Toronto’s average price for a detached home was $1,040,000 in the month of February.  This is the first time the average for a detached home held above $1M for an entire month.

One Million Dollars!

Does that line ever catch our attention and make great headlines. This milestone is certain to cause many to claim the housing market has gone insane and that Toronto Real Estate is drastically overvalued. While large price appreciation should cause people to question whether housing remains a good investment, don’t let sensationalism trump rational thinking, and ask instead: can Torontonians afford to spend $1M for a detached home?

Earlier this year many people wrote about how there was such a large increase, 38% to be exact, in the number of homes that sold for more than $1M in 2014.  I was about to write about it myself until I realized it wasn’t that ground breaking. As homes in Toronto continue to show strong appreciation, it’s natural to see an increase in sales in higher price segments. If you look at how many homes were selling between $900,000-$999,999 in 2013, you could have predicted a 30% increase in sales over $1M in 2014, given Toronto’s recent appreciation rates.  What this increase did confirm, is that Buyers’ have an appetite to purchase homes above $1M, and we are continuing to see it in 2015.

In order to be able to afford a $1M dollar home with a 20% down payment and a 3% interest rate, you need to have a pre tax annual household income of about $165,000 (based on 32% GDS ratio).  For me, the potential rental income is not as important a factor because the majority of this price segment is made up of owner or owner/tenant occupancy.  The big question is: are there enough households in Toronto making over $165,000 to justify the average price for a detached being above $1M?  According to Statistics Canada, in 2010, 15.6% of households in the GTA and 12.6% in Toronto made above $150,000. In February 2015, the GTA had 628 sales above $1M dollars accounting for 9.9% of Toronto home sales.   This is an important number in my mind; it shows that inventory selling above $1M is in line/below the percent of people in the City who can afford a $1M home in current economic conditions.

What I find interesting about our market is the disconnect between income and home sales in the segment just below the $1M mark. In 2010, 17.3% of the GTA and 13.4% of Toronto households had incomes between $100,000-$150,000.  If your household income is $100,000 with a 20%down payment, you are likely to be approved for a purchase price in the neighbourhood of $600,000. But February sales in the $600,000-$999,999 price segment made up 25% of the GTA’s sales.  So we are seeing the number of sales in this segment exceeding the number of households you would expect to be able to afford to purchase in this price range (based on 2010 incomes).

In saying that, I’m not sounding the alarm. There are several reasons why this particular comparison might have some holes in it. For example, maybe this segment is made up of more first-time buyers than we would think. Many people in this price segment could be singles who subsequently combine their incomes to make their $700K house purchase. Perhaps we have seen a large increase from 2010 in the number of households with income over $100,000. Or maybe a larger than expected portion of these purchasers are being gifted a generous down payment by Great Aunt Dot (sounds like rich aunt name, right?) making their monthly mortgage payments that much more affordable. This price segment also has more potential to attract a larger number of downsizers who bought with equity from their $1M sale, but don’t have a household income to support the purchase.

Some people have used this Million dollar news to highlight the price discrepancy between condos and detached houses, I think that this can be misguided.  The average condo continues to shrink in size while the square footage of a detached home and the amount of renovations invested in them continue to increase.  We often see smaller detached homes taken down and replaced with brand new monster-size homes, which has an impact on the average price for detached in the city.  More can be done to increase the value of a detached home than to a condo, and that will always be true; therefore, detached values will continue to far exceed condo prices.

There is always the possibility that the average price for a detached home could become overvalued, especially if we continue to see aggressive price appreciation in a short period of time. However, based on current interest rates and 2010 income levels, the average price for detached home is in line with the percentage of Torontonians who can afford them.  If we see big changes in income levels, employment, interest rates, inventory, or strong price appreciation pushing too much of Toronto’s inventory above $1M, things could change.  We should be keeping an eye on the number of Torontonians who can afford to spend $1M or more for a home and the number of sales in this price segment, but don’t expect us to see prices for a detached home in Toronto pull back in the immediate future.  After all, Toronto should be a Million dollar city, right?!

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