If you’re an aspiring first-time home buyer in Toronto, we get it. It seems like everything from government intervention, rising home prices, and increasing mortgage rates are conspiring against your jump into the housing market.
While it’s true that it’s now harder to qualify and afford a home than perhaps it ever has been in the past – at least in Toronto – we’re here to tell you it’s not as bad as it may seem.
Mortgage Rates: A Brief History
First, let’s talk about today’s mortgage rates. To curb spending and inflation this year, the Bank of Canada has made a record-breaking six increases to its overnight rate target. It increased the rate from 0.25% at the start of the year to 3.75% as of November 2022, with one final rate increase expected before the end of the year on December 7, 2022.
The good news: the rate of change is dropping. In July, the BoC raised rates by a whopping 1%, in September it was 0.75%, and the most recent hike in October was 0.50%.
Mortgage rates have correspondingly increased with each of those policy moves. Currently, the best five-year fixed mortgage rate being offered is 4.94% in Toronto.
Are these increases really worth fretting about? Let’s take a look back at some previous eras to put today’s mortgage rates into perspective.
Not your Parents’ Mortgage
You’ve heard stories that start something like this: “Back in my day our homes cost us next to nothing.”
While that may be true – the average Toronto home price sold for $90,203 in 1981, for example – buyers in that era paid much higher mortgage interest rates.
The Bank of Canada’s five-year fixed rate was priced at 21.75% at its peak in August 1981.
Assuming a homebuyer paid the posted rate on the average home at the time and was able to scrounge 20% as a down payment, the monthly mortgage payment would have been $1,260 amortized over 25 years.
You may be sitting there thinking, what an affordable mortgage! Sure, a $1,200 mortgage seems like next-to-nothing. In 2018, at least.
However, we haven’t considered inflation yet.
According to the Bank of Canada’s inflation calculator, that mortgage in 1981 would cost $3,614.20 per month in today’s dollars. Of course, 1981 was a long time ago. So, let’s look at a more recent example.
About a Decade Ago
Back in 2008 (can you believe that’s almost 15 years ago?) the average Toronto home sale price was $379,347. Not bad. The best discounted five-year mortgage rate, meanwhile, was 5.89%. So, what would it have cost to own a home back then?
According to our mortgage calculator, it would have cost $1,922 per month (again, assuming a 20% down payment amortized over 25 years) or $2,536.64 in today’s dollars.
Today’s Comparison
The average home sold in the Toronto Region across all home types went for $1,089,428 in October, according to the Toronto Real Estate Board. Assuming, once again, 20% down, an average home would cost $5,239 per month at today’s best-fixed rate of 4.94%. That’s a pretty hefty increase from 2008’s cost, admittedly.
But that just means buyers today will have to temper their expectations.
Perhaps a condo may be the right move. At an average selling price of $716,515, a typical Toronto condo could cost $3,396 per month at a five-year fixed rate of 4.94%.
There are also plenty of properties available below that price in Toronto – a real estate agent can help you find more affordable pockets within the city.
For some, though, today’s reality may mean having to look outside the city.
Either way, a little creativity and open-mindedness can still land you in the home of your dreams.
Published: February 26, 2018
Last Updated: November 16, 2022
