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charting retirement
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A home for sale on Fallingbrook Road in Toronto’s Beach neighbourhood on Aug., 29. Home ownership can be a key element in retirement planning but affordability appears to be at an all-time low.Fred Lum/The Globe and Mail

Owning a house is a key element in retirement planning but affordability appears to be at an all-time low. The chart shows there is some truth to this perception. When measured in constant 2021 dollars (right-hand scale), mortgage payments have been higher in the past two years than at any time in the past half century. On the other hand, if we express mortgage payments as a percentage of median household income (for economic families), we find that paying off the mortgage was more difficult in the early 1980s than it is now.

House prices have risen so much and remained so high for two reasons. First, median household income (including government transfers) is 50 per cent higher today in real terms than it was in 1976. We are therefore paying more for housing because we can afford to pay more. Second, a once in a lifetime wealth transfer is under way as aging baby boomers extend financial assistance to their adult children who are buying their first house.

House carrying cost over time,

from two perspectives

MONTHLY MORTGAGE PAYMENTS

In constant 2021 dollars

$4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

1980

1990

2000

2010

2020

MORTGAGE PAYMENTS

As a percentage of median household income

60%

50

40

30

20

10

0

1980

1990

2000

2010

2020

THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA FOR MEDIAN HOUSEHOLD INCOME AND PRICE INFLATION, THE FEDERAL RESERVE BANK OF DALLAS FOR CANADIAN HOUSE PRICES, AND CANADA 3-5 YEAR BOND YIELDS (PLUS 1.5%) TO APPROXIMATE HISTORICAL MORTGAGE RATES.

House carrying cost over time,

from two perspectives

MONTHLY MORTGAGE

PAYMENTS

MORTGAGE PAYMENTS

As a percentage of median

household income

In constant 2021 dollars

$4,000

60%

3,500

50

3,000

40

2,500

2,000

30

1,500

20

1,000

10

500

0

0

‘80

‘90

‘00

‘10

‘20

‘80

‘90

‘00

‘10

‘20

THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA FOR MEDIAN HOUSEHOLD INCOME AND PRICE INFLATION, THE FEDERAL RESERVE BANK OF DALLAS FOR CANADIAN HOUSE PRICES, AND CANADA 3-5 YEAR BOND YIELDS (PLUS 1.5%) TO APPROXIMATE HISTORICAL MORTGAGE RATES.

House carrying cost over time, from two perspectives

MONTHLY MORTGAGE PAYMENTS

MORTGAGE PAYMENTS

In constant 2021 dollars

As a percentage of median household income

$4,000

60%

3,500

50

3,000

40

2,500

2,000

30

1,500

20

1,000

10

500

0

0

1980

1990

2000

2010

2020

1980

1990

2000

2010

2020

THE GLOBE AND MAIL, SOURCE: STATISTICS CANADA FOR MEDIAN HOUSEHOLD INCOME AND PRICE INFLATION, THE FEDERAL RESERVE BANK OF DALLAS FOR CANADIAN HOUSE PRICES, AND CANADA 3-5 YEAR BOND YIELDS (PLUS 1.5%) TO APPROXIMATE HISTORICAL MORTGAGE RATES.

Median household income rose as fast as it did partly because female participation in the work force increased in the late 20th century; it now appears to have plateaued. As for wealth transfers, struggling millennials are unlikely to be as well-positioned as today’s boomers to help out their own children 30 years from now. For these reasons, future increases in house prices are expected to be more moderate than the recent trend.

Frederick Vettese is former chief actuary of Morneau Shepell and author of Retirement Income for Life.

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