Housing Affordability in Toronto
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One of the biggest topics of discussion, amid the current housing climate, centers around homebuyer affordability.
It’s no secret that housing prices have grown substantially over the last decade, pricing many homebuyers out of the market. In fact, since 2020, the housing affordability index has signaled the growing difficultly of costs as they related to housing.
Yet despite some consumer pessimism with the market, homebuyer demand remains shockingly resolute. Those that are successful in purchasing a new Toronto home are getting extremely creative in implementing strategies to help navigate current headwinds.
If you are a new buyer looking to purchase a new home in the Greater Toronto Area, let’s breakdown how to appropriately interpret the current housing affordability index, as well as identify some tips and strategies to help you overcome barriers that will help make your next home purchase successful.
Breaking Down the Housing Affordability Index
The housing affordability index is one of the primary metrics that industry experts examine when analyzing how the housing market is performing. The index measures how much people’s household income is put toward housing-related expenses (i.e., rent or mortgage payments), expressed as a ratio.
The higher the housing affordability index ratio is the harder it is for the average household to afford housing. It means more money is going to housing expense over other household costs. Conversely, a low ratio indicates that housing is generally more affordable.
According to the data, 89% of GTA residents find housing affordability to be one of the biggest problems plaguing the area.1 Many residents want the government to provide more support for local housing initiatives which could boost housing supply, thereby helping alleviate affordability pressures.
Strategies for Prospective Buyers
Even though housing affordability continues to be an issue in Toronto, prospective homebuyers are finding unique ways to purchase their own GTA dream home. Let’s look at some strategies that can help you buy a new home even in today’s challenging real estate market.
1. Start Small, Then Upgrade
As a prospective buyer, choosing a property that checks all the right boxes can be a little difficult if you are working within a restrictive budget. If your ideal home is outside what you can currently afford, consider buying a smaller home or condo.
This tactic is great for first-time homebuyers because it allows you to get your feet wet and can help you determine if owning a home aligns with your lifestyle. Similarly, buying a smaller home now grants you time to build equity, which can subsequently be leveraged to help with your transition to buying a bigger home, with richer features, in a few years.
2. Keep Your Eye Out For Pocket Listings
Another effective buying tactic that also focuses on leveraging off-market properties involves searching for, identifying, and targeting pocket listings. These are properties not listed on the Multiple Listing Service (MLS) or other public channels, but the owner has an interest in selling.
Finding pocket listings can be a challenge. Working with the right realtor with an extensive professional network will be essential to finding these golden nuggets. You should also leverage your own network of family and friends to help identify potential properties via word-of-mouth or a personalized introduction.
Working with a pocket listing is great because you often don’t have to deal with as much competition, and you can often negotiate better terms for your purchase.
3. Watch Out For Assignment Sales
If you aren’t having luck getting your offer accepted, it may be time to broaden your property search criteria. Consider expanding your search to include assignment sales as part of your buying strategy.
Assignment sales are when the original buyer of a home sells their rights to purchase that home to another interested party before the original sale has closed. This released the original buyer from the obligation of having to buy the property and it allows you to become the assigned buyer who can ultimately complete the purchase.
These types of opportunities are growing as many original buyers, who signed on to purchase pre-constructed properties, have experienced headwinds in the market and may no longer be able to afford to purchase the property. This gives you an opportunity to swoop in and snag a great property at a reasonable price point.
4. Consider Properties in Market Adjacent Areas
The real estate market for the Greater Toronto Area can be competitively cut-throat. If you are having difficulty landing a home, consider buying a nearby municipalities or townships. Buyers will often find greater affordability in areas just outside major metro markets (like GTA). If you can find a local property within a reasonable commute, use that as a springboard to buy now and upgrade later.
5. Explore Alternative Financing Options
One of the biggest things that can derail a purchase is when the financing falls through. While a traditional mortgage might work for some buyers, it’s not the only option available.
Make sure you explore alternatives to traditional mortgage financing such as rent-to-own agreements or seller financing so that you can craft an offer that works best for both you and the seller.
In some cases, a co-buying arrangement with a friend or relative can also be effective, because it allows you to pool resources, expands your buying power, and gives you more purchasing options.