Buying a house in Toronto or Vancouver would require an income of at least $220,000

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Buying a home in Toronto or Vancouver would require an income of at least $220,000

Overall of Canadian cities, the annual income needed to buy a home has jumped by an average of $18,000 over the past four months.

Ratehub.ca says it compared real estate data from March 2022 and June 2022 to make its calculations.

You need to earn an annual income of more than $220,000 to be able to Buy a home in Toronto or Vancouver with a 20% down payment, according to new data from mortgage rate comparison site Ratehub.ca.

Even though housing prices have fallen in cities like Toronto and Vancouver, the income required to buy a home in these markets remains higher due to the interest rates used in homebuyer stress tests, which have climbed with rising mortgage rates.

Ratehub.ca says it compared real estate data from March 2022 and June 2022 to make its calculations.

Homebuyers in Toronto are expected to earn $15,750 more than March, up 7%, while those in Vancouver are expected to earn $31,730 more, up 16%.

Rapidly rising interest rates have pushed home prices down in Canada in recent months.

Across Canadian cities, the annual income needed to buy a home has jumped by $18,000 on average in the past four months alone.

The annual income requirement for a home in Victoria, Vancouver Island saw the largest increase in June compared to March, jumping $35,760 , an increase of 23%.

Home prices will need to fall significantly to neutralize the effects of rising mortgage rates on the stress test, one of Ratehub.ca's chief executives, James Laird, said in a statement. Unless this happens, home affordability will continue to be significantly impacted by the current rising rate environment.

The Rapidly rising interest rates have driven down home prices in Canada in recent months, with the average price of a home falling 1.9% in June from May, according to the x27;Canadian Real Estate Association (CREA).

Prices posted a third consecutive monthly decline in June, the largest since 2005.

Economist Robert Kavcic of BMO Capital Markets noted in a note of July 15 that the recent decision by the Bank of Canada to raise its key interest rate by one percentage point paves the way for an even deeper correction in the housing market in 2023.

Robert Kavcic believes that the central bank hike, which prompted commercial banks to raise their prime rates, made it harder to qualify for a mortgage under Canada's stress test rules.

The stress test is a stress test based on the highest interest rate, either that of the mortgage contract plus two percentage points, or that of 5.25%.

Bank of Montreal, CIBC, Royal Bank, Scotiabank, TD Bank and National Bank raised their prime rates by one percentage point to 4.70%, from 3.70% the week last, in response to the central bank hike.

Five-year fixed rates continue to hover around 5% or slightly above.

In the Greater Toronto Area, the average monthly rent was $2,327 in May.

Many potential buyers are currently on the sidelines, waiting to see how this rate environment fare change, which is why there has been such a significant drop in trading volume in these major markets, but the demand is still there, points out James Laird of Ratehub.ca.

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