When I promote a new listing on Facebook, I often receive comments from local users like…
Housing prices in Fort Erie have gone crazy. I’ve lived and worked here all my life but I won’t be able to afford to retire here.
How are young families ever supposed to be able to buy their first house?
I’m barely getting by as it is. I’ll never be able to buy a home of my own.
You get the idea.
While concerns about affordable housing are perfectly valid — and I will touch on this later — I thought I’d take a moment to dive into what the average household (or family) can realistically afford in this area.
How much does the average Fort Erie household earn?
Let’s start with defining average.
According to Statistics Canada, the average Fort Erie household income in 2015 was $75,758. After taxes, the average household was left with $65,070.
Of course, your household income in 2020 might be above this average or it might be below this average.
That’s what makes this number an average — some households make more and some make less. It is nonetheless a good indicator of household spending power in Fort Erie.
For the remainder of this article, I will replace the word household with the word family. It sounds a bit less cold and generic, I think.
Can the average Fort Erie family qualify for a mortgage?
If the average Fort Erie family earns $75,758 annually, what is the most that family can qualify for?
Well, according to BMO, assuming that family…
- carries no debt,
- has relatively good credit, and
- has managed to save a $20,000 down payment,
…they would qualify to purchase a Fort Erie home for up to $360,983.
Note: In the example above, a 5.19 percent interest rate is being used. This isn’t a typical mortgage rate offered by BMO; rather, it is being used for qualification purposes as part of the federal “stress test” (introduced in 2018).
What does the average home in Fort Erie cost?
According to the Niagara Association of Realtors, the average sale price of a home in Fort Erie in November 2019 was $342,300, roughly 20 percent less than the Niagara regional average.
Again, this is an average. Some homes in Fort Erie sell for more than $342,300 while many others sell for less.
What can the average Fort Erie family afford?
Let’s suppose that our average family noted above, which earns an annual income of $75,758, decides to buy a home in Fort Erie.
We know lenders will approve them for more, but let’s assume they wish to buy the average Fort Erie home for $342,300.
They put down just 5 percent ($17,115) and apply for a mortgage to cover the balance of the purchase price, which works out to $325,185.
The average Fort Erie family is approved and moves into the average Fort Erie home.
Their monthly mortgage payment, according to Ratehub.ca, will be $1,590.
Isn’t money tight for them?
Remember how I noted earlier that the average Fort Erie family has an after-tax income of $65,070? I did this for a reason.
Divided evenly throughout the year, this average family has a monthly after-tax income of $5,422.
Taking away their monthly mortgage payment of $1,590, they are left with $3,832 — more than enough to feed and clothe their family, cover utilities and property taxes, as well as save for the future.
How does this compare to renting a home in Fort Erie?
Here is a quick look at all detached Fort Erie homes available to rent (MLS) at the time I am writing this (January 7, 2020):
Averaging these six listings, monthly rent works out to $1,933.
That’s 21 percent more than our average family’s mortgage payment of $1,590.
And, much like homeowners, renters often have to pay their own utilities and insurance.
What does this mean?
Well, in a lot of cases, the cost to rent a Fort Erie home is more expensive than the cost to purchase one. Not to mention that some rentals are only temporary and renters gain zero equity in their homes.
But what about those who are not average?
You might be reading this thinking that, based on the examples I have provided, you can neither afford to purchase nor rent a Fort Erie home.
This may very well be the case for lower income earners, those disabled, those on government assistance, or those on a fixed income (such as retirees).
Affordable housing remains a critical issue across Ontario and I do not mean to make light of how serious an issue it is.
That said, the real estate market is governed by supply and demand. If the average family could not afford a home in this market, the average seller would have to reduce his or her price.
The average family in Fort Erie can afford to purchase the average Fort Erie home, and the term “affordable” varies wildly based upon individual circumstances.
What is affordable to one person (or family) may or may not be affordable to the next.