Buy now or risk saying bye-bye to affordable Montreal home ownership

untitled

Montreal’s real estate market is about to become a game of musical chairs, and anybody who doesn’t get a seat soon could be left standing, permanently.

It might be easy to remain complacent about your ability to buy a house in Montreal. After all, Montreal’s median prices for single family homes – detached, semi-detached and row houses, among the first to become unaffordable to the average person – are $300,000 lower than they are in Toronto, and $500,000 less than in Vancouver.

An average person with average income can still entertain thoughts of buying a house downtown. The slow but steady increases in prices – two, three, four per cent – can act like the proverbial slowly heating water the frog doesn’t know is about to boil. But if you’re renting now, and figure you’ll buy a house someday when that next promotion comes through or the baby’s born, it might be too late.

All the signs of a market on the brink of unaffordability are there. Worries about a saturated condo market sagging in 2015 turned around sharply in 2016. Montreal registered the lowest unemployment rate in 30 years last December, and immigration levels are skyrocketing, with the first six months of 2016 – the latest figures available – outstripping all of 2015.

And foreign investors are almost certainly already on their way to the next undervalued, untapped real estate market now that Ontario has imposed a 15 per cent tax on foreign buyers in Toronto as B.C. did for Metro Vancouver. More money drives prices up. So does more people. Put them both together in a city with the obvious and perennial attractions of Montreal, and it might spell the end of the affordable house on the island.

The jig’s already up in Vancouver and Toronto, of course. Anyone of average income who didn’t buy at least 15 years ago can only peer through the windows as she walks through downtown neighbourhoods. But these cities can serve as object lessons for Montrealers, glimpses into the future, as it were. Vancouver and Toronto were ranked the first and second most unaffordable cities in Canada for 2016, according to the Royal Bank of Canada, which has been tracking housing affordability since the 1980s. Montreal is No. 3.

Though median incomes are almost precisely the same in all three cities, the home price index, a figure that some real estate boards calculate to represent as close to a true average as they can, should be enough to shock you out of your complacency. In Toronto, the number is $727,300. In Vancouver, it’s $906,700. And that’s including condos. (Vancouver’s benchmark price for a single family dwelling is more than $1.2 million.)

But for the moment, things are looking pretty good, even if it does increasingly seem like the quiet before the storm. According to Montreal-based real estate market analyst JLR, the median price for a home in Montreal last year was $410,000, up four per cent from 2015. Compare that with the median income – median being the middle entry in a list of numbers, as opposed to the average, which is the sum of all divided by the number of entries, a figure that can be greatly swayed by extremes on either end – which was $75,010 in 2014, the latest year for which figures are available. That income, depending on your debt situation, could get you a mortgage for a house in the $350,000 range. That’s pretty close to the median, which means that there are still a lot of houses that are still perfectly affordable for average folks. Those salaries are not going anywhere fast – Montreal’s median is within about $1,000 of both Toronto and Vancouver – but housing prices are a different story. And that’s where RBC’s affordability index tells the clearest story.

The bank calculates the total cost of home ownership – interest rates, Taxe de Bienvenue, everything – and expresses it as a percentage of the median household income.

“The rule of thumb,” says senior RBC economist Robert Hugue, “has been that 32 per cent is what we call affordable.”

Montreal passed that point way back in 2003, but it’s now at 40 per cent for all housing types, meaning 40 per cent of your gross income would have to be spent on your house. Toronto is at 64 per cent, and Vancouver at 92 per cent. There are two important points to note here.

First, looking only at single family dwellings, Toronto jumps to 76 per cent, and Vancouver to a ridiculous 130 per cent, whereas Montreal climbs just one per cent to 41 per cent. That means there’s not that much difference between condo and single family home expenses (when you factor in things like condo fees), which means it still makes more sense to buy a house. Second, that 40-per-cent mark where Montreal is sitting right now? That’s exactly where Toronto was 15 years ago. Nobody’s saying Montreal’s market will reproduce those steep climbs, but that affordability number doesn’t have to go much higher before those island houses slip out of the average grasp for good.

And in case you’re hoping the province’s political rollercoaster might lend a helping hand by dowsing the prices from time to time to give you a second chance, don’t.

“We haven’t seen any price decreases since the middle of the ’90s,” says Paul Cardinal, head of Centris, the central listing for all properties in Quebec. “We tried to empirically test that hypothesis, but we weren’t able to see any significant effect of politics on real estate prices.”

Condos are a different thing, and there will always be some small ones available at the lowest end of the market. But if it’s a house you want, JLR analyst Joanie Fontaine figures you should probably act now.

“As population grows, there will be fewer and fewer single family houses,” she says, “and the price of these types of houses will grow faster, and you will need to be farther from the centre of the city, and you’ll need to leave the island.”

So if you want to own a piece of the place, you’d better do it, and quick. Here’s how and where:

The How

If you’ve got the financial wherewithal, or have a parent who can help, what are you waiting for? But if you don’t, or don’t think you do, it can pay to get creative.

Buy with a friend

If you’re not part of a couple, or even if you are, buying a first property with a friend or relative can make it a hell of a lot easier. According to Teddy Kyres, a mortgage specialist at BMO’s Quebec HQ in the Vieux Port, the bank simply sums up your collective debts, assets and incomes when determining your eligibility. You’ll want to get a lawyer to draw up an agreement to avoid any misunderstandings later in case one of you wants to buy the other out, needs to exit the deal or wants to add another name to the title (in case of marriage, for instance). It’s nothing too complicated and something to consider.

Buy a plex

The plex, or multiplex, is an idiosyncrasy of the Montreal market. Sure, other markets have houses that can be or have been divided into units, but on the Montreal real estate market, they’re a feature, and an affordable one. The median price for a plex (anywhere from two to five units) in the Plateau is $669,000. You would need to come up with a 10-per-cent downpayment, but half the income from the rental units is factored into your mortgage application. It’s not a no-brainer – 10 per cent of $669,000 is almost $70,000 after all, but there’s no other major market in Canada where it’s easier to go from tenant to landlord in one step.

Sell the car

As affirmed by Statistics Canada, Montrealers are less dependent on their cars than other Canadians, but if you own a car, sell it. If the sale price could help you get from, say, a five-per-cent to a six-per-cent downpayment on a $350,000 mortgage, you could save about $738 a month: $20 a month in reduced mortgage payments, and $718 in car expenses, according to CAA. That’s about half of the $1,488 that mortgage would cost you each month if you negotiated it right now.

The Where:

Montreal’s assets are spread pretty thick on the ground. The markets, the canal, the pedestrian streets, the strips of cafés, bars, restaurants, and boutiques that anchor neighbourhoods’ continued attractiveness and value are all over the island, but the property values have only just begun to reflect the fact. Here are four ways you can stay ahead of the curve. We’ve used the statistics for single family detached homes – which represents about 32 per cent of Montreal’s households (second only to multi-family dwellings five storeys or less) because this is the alpha house, the top of the hierarchy, the one we tend to picture living in when we’re settled, and the first to pop off the top of the affordability chart.

Villeray 

Median price for a single family detached: $337,500 (all figures from centris.ca)

Go to Mile-Ex, and ask the first young woman with Dries lounge pants and mom-style sneakers where she’s opening her next pop-up DJ kiosk/bone broth stand she’ll tell you Villeray. Just like Mile-Ex was the next Mile End, and Mile End was the next Plateau, Villeray is the next Mile-Ex, and if you get in now, you can get ridiculous deals. Bonus incentive: According to CMHC rules you can get a mortgage with just five per cent down on the entire price of a home under $500,000. There aren’t many neighbourhoods in many Canadian cities – including Montreal – where this means you can get away with a pure five per cent down, but Villeray’s one of them.

A rooftop deck and garden in Villeray. John Kenney / Montreal Gazette files

Mercier-Hochelaga-Maisonneuve

Median price: $351,000

And Mercier-Hochelaga-Maisonneuve’s another. Both Cardinal at Centris and Fontaine at JLR mentioned this part of town as one they thought still had good values, but where prices would rise quickly. According to Fontaine, the number of families earning more than $80,000 a year doubled in this neighbourhood between 2010 and 2016, from 10-20 per cent. “It seems like it’s a neighbourhood worth investing in,” Fontaine said. The housing stock here is largely ‘60s- and ‘70s-style duplexes, the sort of squat, light brick jobs with below-grade garages out front that the typical Mile End dweller might scoff at. But look at Google Maps. It may not seem it quite yet, but this is downtown.

Rosemont

Median price: $456,000

There’s a price jump here, but look at that median – still well under the $500,000 mark. And I presume you’ve seen the Botanical Garden, at the Sherbrooke St. edge, as well as Jean-Talon Market. This neighbourhood’s going nowhere but up, and is the very definition of the sort of place – like Toronto’s St. Lawrence neighbourhood, for instance – that first-time buyers in 2030 are going to dream about living in on their commute from Terrebonne.

Southwest

Median price: $469,750

Le Sud-ouest didn’t used to be a well taken care of part of town. But of course that’s changing now, and the property values have reflected it north of the Lachine Canal in Griffintown and St-Henri, but south of the canal is still a very good value, and will only get better as ice cream stands and street artists start to populate more of the 14.5-kilometre stretch of urban potential. Montreal’s newest and possibly coolest gin-maker, Cirka, set up shop there just last year. You could, too.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s