Can I Afford The Average House in Ottawa?

I have a house-hunting problem.

Even though The Boyfriend and I are years away from buying a place, I can’t seem to kick the weekly habit of checking out the new listings in our neighbourhood. I’ve even dragged him to some open houses in our price range, “just to see!”

Sometimes, as I scroll through the listings, I’ll be like “Hey, let’s just live here!” The listing on my screen is invariably a gorgeous, ridiculously expensive house that looks like something out of a movie, with marble counters and a three-car-garage and two acres of yard.

It’s a joke, because of course we can’t afford to spend $1,000,000 on a house.

That seems like a pretty reasonable statement – we can’t afford a million dollar house – because we’re two millennials who haven’t won the lottery. But it only seems reasonable because we live in Ottawa.

You’d be forgiven for forgetting that there are housing markets in Canada outside of Vancouver and Toronto, because they get all the press – and rightfully so, they are hideously expensive. Articles like this one from Rob Carrick feature couples who aren’t that different than The Boyfriend and me, and yet they’re looking at houses that are almost double our maximum budget, because Toronto.

Lowest Rates took a look at the hard numbers behind keeping the detached-housing dream alive in Toronto, and to an Ottawa resident who has the luxury of ignoring downpayment rule changes that impact houses priced over $500,000, it’s shocking.

The Detached Dream — GTA Edition by LowestRates.ca

The Detached Dream: GTA Edition

They reached out to me to see if I could share a bit of what this picture looks like in Ottawa, and again, as someone who has a serious MLS problem, I was all over it.

Especially because when I heard the average house price in Toronto might hit $1,000,000 in the not-too-distant future, I almost wept.

I did some digging, and according to the Ottawa Real Estate Board, the average residential house price in Ottawa as of May 2016 was $403,603 (that’s as opposed to condos, which rang in at an average price of $261,017.) I don’t know what that’ll be in a year, but I think we can all safely assume it won’t jump up to $1,000,000.

So I took a look at what that means for potentially buying a house in Ottawa, on some of the same variables that Lowest Rates looked at for Toronto.

Minimum Downpayment

If I was going to buy an average house in Ottawa, I’d be dodging all the new down payment rules, because I’d be buying a house that’s under $500,000. I would only have to put 5% down, which on a $403,603 house, is $20,180.15.

Now, would I ever buy a house with only 5% down? Not a chance, but that’s an opinion for another post. For now, let’s just assume we stick with the minimum, and do math things from there.

Closing Costs

Closing costs in Ottawa are a bit different too, because we don’t have Toronto’s municipal land transfer tax to worry about. That said, we’ve still got a fair amount of closing costs to budget for: provincial land transfer tax, CMHC insurance, admin costs and life-happens moving costs.

Provincial land transfer tax: $4,547.06
Pretty simple: if you’re in Ontario, you have to pay land transfer taxes. You can calculate what they would be here.

CMHC insurance: $13,803.19
This.

This is why I don’t think you should only put down 5% on a house. If you put down $20,180.15, and then you get charged an extra $13,805.19, you effectively have $6,374.96 in equity on your house – that’s 1.6% of the original purchase price.

But again – that’s a rant for another post. This is not the end of my opinions about 5% down payments. You can calculate potential CMHC premiums here.

Admin costs: $2,000
This is everything from home inspections to lawyer’s fees, and yes, they come up. Budget accordingly!

Life-happens moving costs: $3,000
Maybe it’s a new couch, maybe it’s paint to freshen up the house, maybe it’s lawn care equipment, but I’m just going to put it out there: I’m factoring this into my budget for a new house. I have no illusions that I’ll be able to move and not find some kind of unavoidable purchases involved (especially the paint thing. I am all about fresh paint to make a space feel like home.)

Mortgage Rates

As much as I am not about that squeezing-things-into-your-monthly-budget life, mortgage rates have one of the biggest impacts on whether or not you can afford your house, because they directly impact your monthly payment.

If you’re buying today, you’re basically winning the mortgage-rate lottery, because rates are low af. That said, they will go up again someday (probably) so let’s take a look at what your monthly payment would be on the average Ottawa house using a few different rates.

  • The average 5-year fixed rate from LowestRates.ca is 2.34%, which on that average Ottawa house with a 5% downpayment, gives you a $1,748 monthly payment.
  • Keeping everything constant, but using the average rate from 2014, which was 2.97%, you’d be looking at $1,874 each month – a $126 difference.

It just goes to show you that what seems like a fairly minor difference can make a big impact on your monthly budget, which is why you should always compare rates. It’s not the only thing that matters when choosing a mortgage, but it’s definitely worth knowing your options.

That $126 difference? Yeah, it’s $7,560 over a 5-year mortgage term.

Yikes.

So… Can I Afford The Average House in Ottawa?

The general rule of thumb I like to use for “is this housing situation affordable” is whether I can cover all my housing expenses on 30% of my take-home pay (you can check what that is for you using the One-Minute Budget, in – obviously – less than 60 seconds.)

The CMHC guidelines give you a bit more wiggle room, recommending your housing costs ring in at no more than 32% of your gross income, and to calculate that, they add up your principal and interest payments (i.e. your mortgage payment), your property taxes and your heating bill.

For this average house in Ottawa, here’s what that number looks like annually.

Mortgage payments: $20,976

Property Tax: $4,036.03 (1% of purchase price, approximately)

Heating: $1800 (going with Lowest Rates’ estimate, because ¯\_(ツ)_/¯)

You’d ring in at $26,812.03 in annual house costs, which using the CMHC affordability guidelines means you’d need an annual income of $116,000 to handle the housing payment.

And even though I’m conservative like nobody’s business when it comes to affordability, my 30% of take-home pay rule only puts you at about $126,000 a year, pre-tax. (Although OK, fair, that is a $10K difference and nothing to sneeze at.)

At the end of the day, the question Lowest Rates posed in the infographic was whether or not the dream of a detached home is still within reach. In Toronto – especially if prices top $1,000,000 and trigger a 20% downpayment – it’s a little iffy, but in Ottawa?

I’m going to say it’s more doable.

But like, please don’t come drive up the Ottawa prices all at once, OK Toronto? We don’t have a basketball team, and it’s very cold here, I swear. You wouldn’t like it.

I’d love to hear from other people on this one, Ottawa or not! Do you think homes in your area are affordable? How did you figure out how much house you could afford?

This post was a collaboration between me and Lowest Rates, but as usual – and obviously from the ridiculous stories – all opinions are mine!