This is how much money you need to make to afford a home in Kitchener
You’ll need to be making more than $150,000 per year to afford to buy a home in Kitchener with a 20 per cent down payment, according to Ratehub.ca.
The mortgage broker says even though homes prices are trending downward in some major Canadian cities, higher stress tests driven by increasing mortgage rates mean the annual income you need to buy a home is actually going up in many places.
Ratehub.ca calculated the minimum annual income needed to buy a home in various cities using rental data from March 2022 – the month the Bank of Canada began raising its key interest rate – and June 2022.
In Kitchener, the average home price in March 2022 was $938,500. With a $748,960 mortgage, Ratehub.ca says would-be buyers needed at least $152,570 in annual income to purchase a home.
In June, the average home price in Kitchener was down nearly $150,000 to $790,600. With a $632,480 mortgage, buyers needed an income of $153,750. That's $1,180, or 0.77 per cent, more than they did in March.
The increase seen in Kitchener is smaller than those in other Canadian cities analyzed by ratehub.ca. In Toronto, the income needed to purchase a home rose $15,830 over the same time period, while in Ottawa it jumped $15,350, and in Hamilton it was up $8,660.
“Home prices will need to drop significantly in order to neutralize the effects that higher mortgage rates have on the stress test,” Ratehub.ca co-CEO James Laird said in a statement. “Unless this happens, home affordability will continue to be impacted significantly by the current rising rate environment.”
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Rapidly rising interest rates have pushed Canadian home prices down in recent months, with the average price of a home falling 1.9 per cent in June compared to May, according to the Canadian Real Estate Association (CREA).
June was the third consecutive month of declining prices, and the biggest monthly drop since 2005.
BMO Capital Markets senior economist Robert Kavcic said in a July 15 note that the Bank of Canada's recent move to boost its key interest rate by a full percentage point is setting the stage for an even deeper housing market correction in 2023.
Kavcic said the hike, which prompted the commercial banks to increase their prime rates, has made it more difficult to qualify for a mortgage under Canada's stress test rules.
The stress test sets the qualifying rate for uninsured mortgages at either two percentage points above the contract rate or 5.25 per cent, whichever is greater.
The stress test rate rose from 5.25 per cent in March to 7.21 per cent in June, according to Ratehub.ca.
With files from Canadian Press
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