RBC Economics reports that it takes an astronomical 85.6% to buy a bungalow (opens a pdf, see page 5) of household income to buy a bungalow in Vancouver.
Is this 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 85.6% of household income to buy a detached bungalow in Vancouver which has an average price of $942,700, 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 85.6% 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 85.6% of their household income.
Instead they look at more affordable apartment condominiums which, according to the RBC Report, have an average price of $411,700 (See page 7 of the RBC report) in Vancouver, and would cost $1,989 per month – 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 $357,600 or in Coquitlam where the benchmark apartment price is an affordable $273,200 according to the latest stats from the Real Estate Board of Greater Vancouver.
That’s the real story.
If you have questions please contact Andrew Peck VP and General Manager, Royal Pacific realty Group at email@example.com