There’s little question we are in a housing crisis, with nowhere near enough homes being built or available for sale. From 2015 to 2022, Waterloo Region was growing faster than nearly any other medium or large sized metropolitan area on the continent. With this level of growth, how high a salary is needed to buy in Kitchener Waterloo?
While prices have come down from the record levels we saw in the spring of 2022, overall borrowing costs have remained high due to almost non-stop interest rate hikes right into the summer of 2023. Heading into 2024, some lenders have begun to offer money at 5% but buyers still need to factor in the additional 2% required by the stress test.
Here’s a breakdown of just how much a typical buyer needs to earn to purchase property here in Kitchener Waterloo in early 2024. I used a 5 year fixed term 25 year amortization mortgage with a stress test rate of 7%. The down-payment was set at 10%.
FYI, a 5% down-payment is only allowed on purchases under $500k. Purchases between $500k and one million require 5% down on the first 500k and 10% on any additional amounts up to a million dollars. Any property over $1,000,000 needs a minimum 20% down.
Here are the calculations for semis, towns, apt. style condos and detached properties using February’s data. Jsyn, I included 1/2 month’s condo fees for the apt. style condo as that is normal practice. I’m assuming no debt aside from the mortgage and using a gross debt service (GDS) ratio of 35% which is the typical max % that lenders will allow.
Kitchener Waterloo apt. style condos
They’re averaging $458,000 here in KW. Lenders need your heat, taxes, mortgage and 1/2 your condo fees to be no more than 35% of your gross income.
Assume monthly property taxes of $225, heat @ $75 and 1/2 condo fees of $200. Using the above criteria, a mortgage of $412,200 has a monthly payment of $2885.71
$2886 + $225 + $75 + $200 = $3386 Gross Debt Service per month.
With a GDS ratio of 35% we multiply $3386 x 100/35 to get the required monthly income.
$9674 x 12 = $116,091 yearly household income.
Kitchener Waterloo semis and towns
For semis and towns in KW the prices are close enough I’ll merge them. Average for Feb was $626k. Let’s say $250 for taxes and $100 for heat. Freehold, no condo fees. A $563,400 mortgage has monthly payments of $3,946.14
$3946 + $250 + $100 = $4296 Gross Debt Service per month.
With a GDS ratio of 35% we multiply $4296 x 100/35 to get the required monthly income.
$12,274 x 12 = $147,291 yearly household income.
Kitchener Waterloo detached
The average price for a detached home in KW last month was $911,000. Let’s use $375 for taxes and $100 for heat. Again, a 25 year fixed rate mortgage with a stress test rate of 7% and 10% down = mort payment of $5,743.41
$5,743 + $375 + $100 = $6218 Gross Debt Service per month.
With a GDS ratio of 35% we multiply $6218 x 100/35 to get the required monthly income.
$17,765 x 12 = $213,188 yearly household income.
There’s no question these are some very steep numbers. Unfortunately this is the result of bad decision making by all levels of government for many years, drastically worsened by dropping interest rates to almost nothing during the pandemic.
These income requirements are a huge issue for anyone trying to get into the market for the first time and there are no easy solutions on the horizon. It will take many years to substantially increase our housing stock in the region. If there’s any place that needs an accelerated building program KW would be it.
Prices are less of an issue for those who are already on the property ladder but value can still be found in our market. Kitchener and Cambridge are cheaper than Waterloo more often than not, and prices span a wide range in every segment. Detached starter homes can be found in the high sixes and low sevens throughout the region. Buying at off-peak times can help too, with properties often selling at a discount during the dog days of summer, or deep in the winter.
