Forget the more optimistic predictions that Canadian home costs will remain low and affordable.  The factors that the more upbeat players cite -  the continuing influx of foreigners, the discontinuance of construction in the  more congested urban areas, and a smaller number of vacant homes – are NOT the key determinants of affordability.  Check instead the historicals of the performance of mortgage and home rates – and make estimates for the future.

Rob Garrick of The Globe and Mail does so, and his conclusion:  unless the current annual  increase home rate of 2.5 per cent stops, in 25 years’ time,  a typical Canadian home would cost $500,622 to purchase.  By then, the typical five per cent downpayment would cost a home owner $25,031 and monthly amortization at 4.5 percent to be paid in five years’ time would be $2,709.

A quarter of a century may seem a long time, but Garrick further argues that a home owner in the future would have to earn an annual income of $125,000.  This means a pay raise of 5.6 per cent every year over the next ten years.  While the rise of home costs has been constant, pay hikes have been rare if not non-existent in a struggling economy.

Bottomline, the average Canadian wage earner might not be able to afford a home in the near future, if home rates do not stop their annual increase.

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