This week I thought I would try something a little different from my previous posts about Absurd Vancouver Properties. I consulted with a financial professional about what “affordability” really is for the average Vancouver family, when it comes to real estate.
The median family income in Vancouver is $67,550 (Statistics Canada). Based on that, I asked Bradley Bumsted*, a Certified Financial Planner, what he would see as being a responsible and affordable mortgage amount.
When asked by my clients to help with their budgeting needs I tend to reference CMHC (Canadian Mortgage and Housing Corporation) when advising how much to allocate towards their housing expenses. According to CMHC monthly housing costs shouldn’t exceed more than 32% of your gross monthly income (income before taxes and deductions). Housing costs should take into account your monthly mortgage payments (principal and interest), property taxes and heating expenses. For the average Vancouver household making $67,550/year that would equate to a monthly payment of $1801.33. However it is important to note that your monthly mortgage payments are a function of your chosen amortization period and given interest rates so the size of your mortgage will vary depending on those factors. Another very important variable in determining how much house you can afford is the size of your initial down payment. The larger the down payment the more house you can afford. A general rule of thumb that can be used quickly to determine how much should be spent on purchasing a home is multiplying your gross annual income by 3.4. Applying this rule of thumb to the median household income in Vancouver of $67,550 and assuming a minimum down payment of 5% the average Vancouver household can afford a property of $229,670 with a 5% down payment of $11,483.50. Keep in mind that these numbers are prescribed maximums and that it would be prudent to strive for lower ratios in order to maintain a more affordable lifestyle.
So to summarize:
- Average family income for Metro Vancouver is $67,550/year
- The average family could, therefore, afford a mortgage payment of $1801.33/month
- Based on the “rule of thumb” of multiplying annual income by 3.4 – the average Vancouver family could afford a home that costs approximately $230K (with a 5% down payment).**
So…what will $230K buy you in Vancouver (and we’ll concentrate on housing that would accommodate a family of 3-4 – so at least 2 bedrooms and 1 bathroom). Let’s have a look, shall we?
Without crossing city boundaries, I found at total of 4 properties on Realtor.ca in Vancouver for under $250K including the following:
Looks, nice right? At $156, 500, this 2 bedroom, 1 bathroom condo seems like a steal by Vancouver standards. Until you find out that (a) this is a foreclosure property that requires a down payment of at least 20% and (b) there is an assessment on the building (to fix leaks) for over $144K per unit, bumping you up to just over $300K for a 750 square foot apartment. Update – this property is now SOLD.
Moving on to another option:
Slightly larger at 930 square feet, this apartment is located on the corner of East Broadway and Nanaimo. It is close to the skytrain and schools. At $228K this has also been assessed as a “leaky” condo. Still waiting to hear back from the realtor as to what the extra cost will be to the purchaser for that…Please do note that if you are interested, this property already has an accepted offer on it.
This condo is listed at $239K, is in “original condition”, and is awaiting your “decorating ideas.” It is 811 square feet with 2 bedrooms, a den and 1 bathroom on busy Dundas Street, however, the unit itself faces the alley way and not the main street.
Vancouver…are you f*%#ing kidding me?
Tune in later this week where I challenge a local Vancouver realtor to find a home within the price range of an “average” Vancouver family…is it even possible?
*Bradley Bumstead is a Certified Financial Planner (CFP) and Senior partner at Bumstead Financial Services. An independent financial planning firm focused on creating customized financial plans for individuals and businesses.
**Note some people can qualify for a larger mortgage if they have help with a larger down payment from family or a guarantor signature on their mortgage loan.