Does it take 82.3% of household income to buy a bungalow in Vancouver?
The news stories are reporting it takes an astronomical 82.3% of household income to buy a bungalow in Vancouver.
This number is based on research done by the Royal Bank of Canada (RBC) for its May 2013 Housing Trends and Affordability report. (see page 7)
Is it true?
Andrew Peck, Vice-President and General Manager, Royal Pacific Realty Group, explains that if we use RBC’s measures and accept the way these measures are constructed and what they are based on, then it does indeed take 82.3% of household income to buy a detached bungalow in Vancouver which has an average price of $786,300, according to RBC.
Peck notes that RBC’s formula calculates the proportion of pre-tax median household income necessary to service the cost of mortgage payments (principal and interest), property taxes, and utilities on a detached bungalow in Vancouver, given:
- a 25 per cent down payment; and
- a 25-year mortgage loan at a five-year fixed rate.
But, says Peck, “a mortgage lender would never approve a mortgage loan that would require 82.3% of household income to service. Lenders typically have a 32% gross debt service maximum.”
The real story
The real story, according to Peck is that home buyers simply don’t look for homes that would cost them 82.3% of their household income.
Instead they look at more affordable apartment condominiums which, according to the RBC Report, have an average price of $388,100 in Vancouver, and would take 41.6% of household income to service – and even less if the buyers received a discount off the posted mortgage rate.
Buyers, according to Peck, would also look further afield in communities like Richmond where the benchmark price for an apartment condominium is $346,000, or in Coquitlam where the benchmark price is an affordable $246,700 according to the latest stats from the Real Estate Board of Greater Vancouver.
That’s the real story.
If you have any real estate questions or if you are thinking of buying or selling your home, please contact James Louie Chung, Metro Vancouver REALTOR® – Real Estate Agent at firstname.lastname@example.org
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