How Affordable is Your Market?

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Image: Duncan Rawlinson / Flickr

The Frontier Centre for Public Policy released some interesting statistics about Canada’s housing market yesterday.

According to their data, Vancouver is the most unaffordable market for homes in Canada, and it also more unaffordable than every other market in the English-speaking world. It ranked even higher than New York and London.

The group determines affordability by dividing the median household price for a city’s metropolitan area by the median household income. The group has determined that any ratio higher than 5.1 is “severely unaffordable.” In Vancouver’s case, the median home price of $540,900 was divided by the median income of $58,200 to achieve a ratio of 9.3.

Rounding out the world’s top 10 are six cities in Australia, including Sydney and Melbourne, Victoria, British Columbia and sunny places in the U.S. and England (Honolulu and Bournemouth, respectively). Toronto is the highest-ranked Canadian city that is not in B.C., and it ranks at number 57 in the world.

Also according to the group, affordability has dropped in most Canadian cities in 2009. This is likely due to a combination of stagnating wages in the recession, and the dropping inventory of properties, which is affecting prices. There is good news for Alberta, though – both Edmonton and Calgary became more affordable in 2009 as their housing markets continue to cool.

All of this data may make you feel nervous about buying in one of the cities that are classified as “unaffordable.” But here’s several points to keep in mind.

The most affordable market in the English-speaking world is one of the most economically depressed: Detroit. London and New York – two of the most economically and culturally vibrant places in the English-speaking world – are also two of the most unaffordable. Buying in an economically robust city is usually a better idea than buying in one that is having economic difficulty, no matter how affordable it is.

As well, this study neglects to take into account the effect that investor-based purchasing has on the market. Vancouver is partly classified as “unaffordable” because there are a lot of investors from outside the city snapping up high-priced properties. These investors don’t count into the median household income for the city, but they do boost its average home price. This skews the data, and makes Vancouver look more unaffordable than it actually is.

Image: Darren Kirby/Flickr

And the study neglects the range of properties available. You may “only” make the median income for your city, but in the big markets, there are always a wide range of properties that will fit into your budget.

As always, statistics like these should be taken with a grain of salt. You are a person, and not a statistic, and finding the right home is more about your personal situation than what everyone is doing. Don’t worry about living in a city that is “unaffordable” – you don’t have to afford the whole city, you just need to afford your home!

Find the whole report here.

Heleen Jacobsen
Broker of Record with InfoMarket Group GMAC Real Estate
www.infomarketgroup.com