Published: Saturday, September 08, 2007
National Post

JANE RENWICK - URBANATION

Following the ninth-consecutive quarter of index price increases, it's getting more difficult for the average consumer to purchase a condominium.

Urbanation has been tracking changes in the required income to purchase a typical 700-square-foot condominium in the Toronto Census Metropolitan Area (CMA). This is based on overall average index prices, the current five-year posted mortgage rate, and assuming a 25% total down payment, 75% conventional mortgage, $0.43/sq. ft. maintenance fees (plus $100/month in hydro payments) and 1% annual property taxes. Required income is calculated using a 32% gross-debt-service ratio.

The qualifying income to purchase this hypothetical 700-sq.-ft. unit remained virtually unchanged at $54,000 to $57,000 for the four-year period from 2001 to 2005, as falling interest rates generally offset price escalation.

However, since the end of 2005, prices and mortgage rates have been trending upward in tandem, and qualifying incomes started to rise.

In the second quarter of 2007, the overall average index price for a new condominium in the Toronto CMA was $371 per sq. ft., and the average posted five-year mortgage rate was 7.2%. So, the qualifying income to purchase a hypothetical 700-sq.-ft. unit was $70,000 per year, an increase of $7,000, or 11%, compared with the second quarter of 2006.

This suggests that, in theory, general affordability has eroded over the past year, but so far, there has not been any evidence of a negative impact on demand or sales, suggesting that overall prices (especially end-selling prices) and mortgage rates are still relatively affordable for many buyers.

Vibe at Liberty Village, a new site that has an average price index of $367, which is close to the average price index for the Toronto CMA, is selling a 381-sq.-ft. studio unit for $152,000. Using the conditions outlined earlier, the qualifying annual income to purchase this unit would be $40,000. Vibe is also selling a 820-sq.-ft. two-bedroom unit for $297,000, the qualifying annual income for this suite would be $81,000.

It is unlikely that the pace of sales will remain at record levels if the rate of price inflation observed in the latest second quarter is maintained throughout the year.