It’s no secret that today, Toronto mortgages seem like something reserved for only the most wealthy. Just last month the average price of a home in Toronto was $502,508, compared with $453,329 just a year earlier in February 2011. But it’s not just this sharp increase that has many concerned. Finance Minister Jim Flaherty keeps warning us about household debt levels, and about taking on more debt in the form of mortgages. Others meanwhile, are in near hysteria about the rising housing costs, leading to talk of a bubble that one day soon, is going to burst. But, more government intervention and tighter lending rules may not be the answer. When you’re speaking of Toronto anyway, the mortgage market might just cool down on its own.
The fact is, that it’s just getting too darned expensive to live in Toronto. Mortgages aside, a new report from Royal Bank also just showed that additional expenses such as property taxes and utility bills, in addition to mortgages and second mortgages, account for 61% of the average household pre-tax income. That leaves families and homeowners with less than 40% of their income for all their other bills in life; and they can just about forget it if there’s anything extracurricular that they want to do aside from paying bills.
It does seem as though only the rich can afford to live in Toronto but that might be okay. At least for the time being. It’s a time when both Mr. Flaherty and Mark Carney want to impose new rules and raise interest rates, but their hands are tied because doing so would have severely detrimental effects on other aspects of the economy, such as the unemployment rate. But, should sellers continue to push those prices up, it may be enough of a deterrent for people who can’t afford those high house prices – and there’s no rationale on earth that would allow banks to hand out those loans to people who couldn’t afford them; largely in part because of the tighter mortgage rules Mr. Flaherty has already imposed.
So maybe all of Toronto can breathe a sigh of relief – even those who can’t afford a home in the city right now – because the high home prices could cause the market to cool all by itself. When people aren’t buying, prices get reduced, and that leads to a cooler housing market. And for those worried that they’ll never be able to afford a home in Toronto? They can relax, too. Toronto has one of the strongest and most stable housing markets in all of North America; it’s been that way since the end of the Second World War. So, it’ll cool off and then it’ll come back. And when it does, just about anyone who wants to own a home in Toronto will be able to do so.
