That home prices are on the rise has become a tired old narrative -- Canadians have been aware of their eroding affordability for nearly a decade now, as values truly began to ramp up in 2015 when interest rates were cut for the first time since 2010.

Real estate prices in the City of Toronto were well outside the realm of affordability long before the pandemic, but given the supercharged conditions experienced over the last two years, buying power has declined well beyond city limits, penetrating into previously more affordable pockets throughout the 905. 

Of course, this has been exacerbated by some of the tightest supply-and-demand imbalances and hottest sellers’ markets ever seen, leading to yet more record-breaking price numbers in February, when the average sold price in the Greater Toronto Area hit $1,334,544, reflecting a year-over-year increase of 27.7%. 

READ: The Average Detached House in Toronto Has Officially Crossed the $2M Mark

That this is an average of all home types from across the entire region -- which includes Halton, Peel, Durham, and York Regions, as well as Dufferin and Simcoe Counties -- is staggering.

It used to be that buyers looking to stretch their budgets had the option to “drive until they qualified”. But for today’s homebuyer, any kind of low-rise housing (ie., not a tower in the sky) comes with a minimum $1M price tag. For those looking for the ever-elusive single-family detached house, a $2M budget is now the reality, coming in at $2,073,989 within the 416, and $1,727,963 in the 905. 

This is the case in markets once considered the last bastions of affordability such as Durham (where the average home price is now $1,228,990), and even rural markets such as Orangeville, Innisfil, and New Tecumseth -- all with average prices over $1M.

READ: You Now Need a Down Payment of More Than $400,000 For a House in Toronto

And there’s not much relief in the condo segment, either; while still the most affordable entry point to the market, the average city unit clocked in at over $822,000, a 21.5% year-over-year increase, with those looking for units in the 'burbs shelling out over $756,000.

Unfortunately, according to Royal LePage’s 2022 forecast, there’s not much relief on the horizon, with home values expected to climb another 11% in the GTA, and 10.5% across Canada, this year.

The New Down Payment Reality

As one can imagine, that means the budget for today’s average home buyer looks considerably different than just a few short years ago. Jim Roberts, real estate agent at Sage Realty, says today’s buyer needs $75,000 cash on hand to even have a fighting chance -- and that’s for a “starter home”.

“What was a starter home seven or eight years ago is now a sub-600-square foot condo. And that’s a pretty tough pill for a lot of people to swallow. It’s been great for anybody who owns property, but for those just coming out of university who are in their late 20s, early 30s, who are trying to get into the market for the first time, it’s a really hard situation,” he tells STOREYS.

“Unless you’ve got family who’s willing to help out… for the average person or couple who wants to get into the market -- to find a one-bedroom, downtown condo right now, you’d probably need to be spending upwards of $700,000. If you’re going to try to save up for that downpayment, you’re going to need close to $75,000 to get the mortgage, you’ve got to have incomes that qualify.” 

This client experience is echoed by Jelani Smith, sales representative with Re/Max Millennium Real Estate, who says his first-timer clients are having to cough up hundreds of thousands of dollars more to get into today’s market than before the pandemic.

“To give you a quick example, for a condo in Scarborough, in 2020, $400 - $450,000 was actually a decent budget for a first-time buyer. But fast forward to today’s market and those same condos are going for $600,000, sometimes over $700,000,” he says.

“If they want to have a decent living space, if they don’t want to sacrifice too much -- or if they don’t want to, quote unquote, 'live in a shoebox' -- you’re looking at the mid-700s range. If you had asked me before COVID, I would have said around $450,000 would have been a decent budget for a first-time buyer looking to get into the condo market.” 

He adds that for detached buyers, while everything is priced well above $1M, he’s still seeing “huge discrepancies” across the GTA in terms of pricing; the same two-car garage house going for $1.1M in Pickering could easily clock in at $1.6M in Brampton, for example.

Co-Signers to the Rescue

All this begs the question: how are buyers, especially first-timers without move-up equity, still coming up with the funds to get deals done?

Ultra-low interest rates certainly help, but all borrowers are still subjected to a stress test, which effectively tacks 2% onto the rate they’ll actually receive from their lender -- but that threshold certainly hasn’t seemed to dissuade today’s aspiring buyer.

According to Ron Butler, mortgage broker at Butler Mortgage, co-signers are increasingly coming to the rescue, with the number of files with three to four applicants through the roof.

“It’s been growing over the past year, but has become amplified since the new year. It’s a simplistic concept: your parents can gift you a down payment, but they can’t gift you income, unless they go on the file, that’s it,” he says.

“You’ve got to have a LOT of income to get a $800,000 mortgage -- like a lot. And you can’t do it with two people with [income of] $65,000 each, or one at $80,000, one at $65,000; you’re not going to get there.”

READ: 40% of Young Ontario Homeowners Got Financial Help From Their Parents

Further compounding the challenges for first-timers, he adds, are car and student loans, which just “blow their debt ratios out.”

“They need that extra income, and the place you can go look for it is even parents on a pension because they typically are mortgage-free, and even though the pension might be a combined income of another $30 - $40,000, it puts them over the edge for where they need to go,” he says.

The downside here is that this is all contingent on home prices moving ever higher -- a bit of a self-fulfilling prophecy as gifted funds and shared risk continue to prop up demand in the market.

“Here’s almost the most crushing thing about it: the narrative is, ‘Don’t worry. Within two or three years, the value of the property will have gone up so much that we’ll be able to get you off title'. Or, conversely, ‘there’s nothing to worry about, even though it’s only 20% down now, in 30 years, it’ll be over 50% equity,'” Butler adds.

He’s also seeing other buying trends grow in prevalence, with more borrowers fleeing the GTA -- or even the province -- as remote or gig work provides the flexibility to explore new markets. He points to a surge in Calgary investment purchases, fueled by interest from Vancouver and Toronto buyers. In fact, at least half of his brokerage’s high-ratio deals (insured mortgages only available on homes priced under $1M) are now originating in Alberta, as they’ve “fallen off a cliff” in Ontario over the last 14 months.

“If you want to buy a townhouse in Windsor, there’s still a high-ratio deal to be had, but in the GTA I don’t know where you’re going to find it, except in the condo market,” he laughs. 

In all, buying much further than a commutable distance just to get some skin in the game, seems to be a tactic growing in popularity, and one Sage Realty's Jim Roberts is seeing suggested more frequently to desperate clients.

“I’ve seen some realtors start advocating for clients to start buying in places where they can afford; if they buy it, they rent it -- they don’t necessarily live there -- but they’re in the market,” he says.

“Because prices are going crazy all over southern Ontario, maybe buy something in London or Oshawa and, if prices just keep going up, your nest egg and equity there might allow you to qualify for something that will let you produce the down payment you’d need in Toronto. It’s one of the easiest places to get leverage on your investment.”

“If we’re talking about one of these condos, if you put 10% down, 70 grand down on something, if it goes up 10% value between now and next year, that’s another $70,000. Your ROI on your actual skin in the game is 100% year over year. You can’t find that anywhere except for maybe the crypto markets.”