Buying a home in the Toronto of 1992 was a bit of a stretch for twentysomething couples, but you got it done without much drama.
That’s how I recall things when my wife and I bought our first house almost 30 years ago. I was a journalist at The Canadian Press and my wife worked in internal communications for an insurance company. Once we decided to leave our really nice Beaches rental for a house, we quickly got a mortgage pre-approval and started house hunting.
Our eventual pick was a three-bedroom detached house located in East York, northeast of downtown and not too far from the subway. It cost about $215,000, which was around the average price in the city back then and roughly equal to three times the combined $70,000 or so my wife and I made before tax. Back in the day, they used to say a house should cost three times income.
I’m grateful for a bunch of things right now – great family and friends, great job and the improving outlook for beating the pandemic. I’m also grateful not to be looking for a house in the city because my wife and I couldn’t afford what we so casually bought in 1992. Those young adults who are angry about Toronto the Unaffordable? They’re right on the money.
The Toronto housing market in 1992 was in a long funk that began after the market overheated and crashed in 1990 and lasted for close to 10 years. Many of the houses we visited were listed at prices that were substantially lower than they had sold for within the previous 24 months. There was plenty to look at in our price range and not much competition between buyers.
Mortgage financing was easy to line up, in part because my wife’s employer offered reduced mortgage rates for employees. I recall our rate being around 7 per cent, which seemed just fine. Remember, five-year mortgage rates topped 20 per cent in 1981. It took a decade to get rates into the single-digit zone.
Our down payment was about 10 per cent of the purchase price, so around $21,500. We used the federal Home Buyers’ Plan to withdraw money from our registered retirement savings plans, and we also had a little parental help. But the bulk of our down payment came from saving money ourselves. I had invested some of my home down payment money in the Altamira Equity Fund, a hot number back then, with meh results because we bought sooner than I expected.
The idea of taking on a mortgage hit me hard back in 1992. When the offer on our house was accepted by the sellers, I half-joked to my wife that I felt like someone was standing on my chest. But, honestly, the burden proved to be manageable.
Our mortgage payments would have worked out to roughly $1,400 a month and I estimate property taxes and heat at another $400 monthly. Lenders say your home-related costs – mortgage plus property taxes and heat – should top out at between 32 per cent and 39 per cent of gross income. We made it under the bar at 30.9 per cent.
Adjust our 1992 household income for inflation and you get $117,336 in 2021 dollars. The average Toronto house price last month was $1,025,200, or 8.7 times that inflation-adjusted income. The down payment required to buy the average Toronto house would be $205,040, which represents the minimum 20 per cent amount for houses costing $1-million and up.
Back in 1992, our down payment amounted to less than one-third of our gross household income. Today, the required amount would be equal to almost 1.75 years of income.
Down payments are a challenge in cities such as Toronto and Vancouver today, but so is affording mortgage payments. With a 20 per cent down payment and a current five-year mortgage rate of 2.09 per cent, the monthly payment on the average-priced home in Toronto would be $3,509. Add $550 for property taxes plus heat and you end up with expenses eating up 41.5 per cent of income, which is a deal-breaker.
Buying a house in Toronto back in 1992 was a bit of a stretch for young couples, but nothing insurmountable. In today’s market, we wouldn’t be able to afford the house we used to own.
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