Even the Highest Income Earning Canadians are Locked Out of The Market
In the Toronto area, you literally cant afford to be single if you plan to own a basic townhome.
And, if you have any debt or car payments, you’re even further behind.
A new analysis conducted by The Northern Account reveals that even a top 1% income earning young adult may be barred from entering the GTA freehold housing market today.
99th Percentile Income in 2021 was $196,000 per Year
According to the latest census data, the top 1% of Canadians aged 34 and under made at least $196,000 per year in 2021.
When we adjust for wage inflation we find that this person would probably make 11.4% more today, putting their income at $223,000.
Pretty good salary right? Well, queue the mortgage stress test.
Now for the Mortgage Stress Test
The mortgage stress test was first introduced by the federal government in 2016, but the rules have been updated a couple of times since then.
To qualify for a mortgage loan at a federally regulated bank, you will need to pass this “stress test”.
Basically, you need to prove you can afford payments at a qualifying interest rate which is higher than the your actual mortgage rate.
For purposes of this test, banks must use the higher interest rate of either:
- 5.25%
- the interest rate you negotiate with your lender plus 2%
How Much Mortgage Can a Top 1% Under 34 Canadian Get
Based on the above stress test, a top 1% income earning Canadian under 34 making $223,000 per year would qualify for a mortgage of $915,721 and $955,759, according to two major Canadian Banks.
This assumes the following:
- Absolutely no debt. No car payments. Nothing.
- Heating costs of $200 per month
- Property taxes of $450 per month
- The associated minimum possible downpayment (around 7.1%)
- A 5.5% mortgage rate, 25 years amortization.
Now that we have established what a top earning Canadian, with no debt, can probably qualify for — the next step is find out what a townhome costs in the GTA these days.
(Note: Many high income earners also have debt, and so, the real cohort eligible for such a large mortgage would be even smaller than the top 1% of young earners)
Average Freehold Townhome in the GTA Costs $1.039M
According to Wowa’s April GTA housing market report the average freehold townhouse in the GTA costs $1.039M as of April 2024.
Conclusion: Top 1% Salary No Longer Gets you Into a Freehold Home in the GTA
The conclusion is shocking — as a young adult, a top 1% salary in Canada no longer gets you into a basic freehold townhome in the GTA.
This salary also just barely gets you into a small, average priced, condo in the same area.
With average condo prices hovering over $700,000 in the GTA, and given that you need to subtract half of your condo fees when calculating your pre-approval, it would still be tight.
The Dream of “Going at it Alone” and Buying a Townhome (or Even a Condo) Solo in the GTA is Largely Dead
In 2024, a large downpayment or having spouse is a must; even if you’re a top 1%er.
Final note: Even a larger downpayment wouldn’t help much — using the bank pre-approval numbers above, another dollar added to the downpayment would only get you an additional dollar of approval room. The bank itself wont lend you any additional money.
