Out of all assets you eventually own, a home will likely be the most valuable — and expensive. Buying a home is a huge financial undertaking, and one that requires sound financial discipline and a sizable amount of money upfront. If you’ve got your sights set on buying a home in Ontario, you’d be well-advised to do a little homework to find out what home prices are looking like in this province.
Some of the more expensive real estate markets in Canada are located in Ontario, with the likes of Toronto and the surrounding GTA keeping the province-wide average price high. Let’s take a closer look at where home prices currently are in Ontario to help you make a more informed purchasing decision when buying a home.
What Factors Impact Home Prices?
Whether you’re looking to buy a home in Ontario or anywhere else in the country, the same factors play a role in what home prices are currently doing. Ultimately, the price for a home will be dictated by the amount qualified buyers are willing to pay for it. This demand among prospective buyers is influenced by several factors, including the following:
The Temperature Of The Market
Is it currently a ‘buyer’s market’ or ‘seller’s market’ in the city you plan to buy in? The answer to this question will impact what the going price for homes currently is. In a buyer’s market, the demand for homes is not as strong, as there are usually more homes available for sale than buyers looking to make a purchase. In this case, the price for homes would be lower.
On the other hand, a seller’s market is characterized by few homes available for sale compared to the number of buyers looking, which would drive demand up among buyers and simultaneously increase home prices.
When the economy is strong and people have more job security and earn better wages, there is usually stronger consumer sentiment. People generally will have more money to spend, including on real estate.
In this case, there may be more demand for housing and a stronger ability to afford homes, which can help keep home prices up. But amid a weak economy and higher unemployment, buying power is not as strong, which can reduce demand and thus keep home prices from increasing.
Mortgage Interest Rates
Right now, mortgage interest rates are hovering near historic lows. And when mortgage rates are very low, home loans are much more affordable to take out. You’ll be paying a lot less on a $500,000 mortgage at 3.0% than you would at a rate of 5.0%, for example.
Low rates incentivize buyers to come out of the woodworks and get into the real estate market to take advantage of these savings. That means more people are looking to buy, which can help boost home prices. But when rates skyrocket, mortgage affordability plummets, which can decrease demand and ultimately keep home prices lower.
You can do all sorts of things to improve the condition and esthetics of a home, but there’s nothing that can be done about its location. A desirable location will increase the value of a home. For example, the same home would command a higher price if it’s located on a quiet cul de sac with proximity to the downtown core compared to if it was located on a busy street in a high-crime neighbourhood.
Age And Condition Of The Home
Generally speaking, an older home that’s in poor condition and is filled with outdated materials will be valued lower than a newer home with more modern finishes. Not only is a newer property more aesthetically appealing, but it’s also less likely to require repairs, which influences its value and the price that sellers can list at.
Certain features are considered more desirable than others, and as such, they bring the value of the home up. For instance, features like hardwood flooring, natural stone countertops, or stainless steel appliances are considered attractive to buyers who may assign a higher value to a home that has these features compared to one that does not.
A larger home is generally valued higher than a home that is short on square footage. Of course, there are some exceptions. But in general, the fact that more land and materials are needed to construct a larger home will likely translate into a higher price compared to a much smaller property.
Average House Prices Of Ontario
In Ontario, the average price for a home is currently $928,897 as of May 2023. That’s a 1.1% increase from the same month in 2022 when the average price for a home was $939,153.
Despite the province-wide average, the price for homes in different cities across Ontario will vary. The following are the top 5 most expensive areas in Ontario as of May 2023, along with their average home prices:
- Oakville: $1,136,300
- York Region: $1,371,150
- Greater Toronto Area: $1,127,000
- Hamilton-Burlington: $877,100
- Ottawa: $645,400
Comparing Average House Prices By Province
|Home Prices May 2023||Home Prices May 2022||Year-Over-Year % Change|
|Newfoundland and Labrador*||$280,400||$271,400||3.3%|
|Prince Edward Island||$358,200||$346,700||3.3%|
How Do Ontario Home Prices Compare To The Rest Of Canada?
The average price for a home in Ontario is higher than the national average. However, while the national house prices increased, Ontario prices have decreased by 1.1%.
Why Are Ontario Home Prices So High?
Ontario is home to some of the busiest real estate markets in the country, including the likes of Toronto and the surrounding GTA. Toronto is the largest city in Canada and is a global leader in business, technology, and finance. As such, it’s home to plenty of employment opportunities.
Toronto is also one of the most multicultural cities in the world, with a large population of immigrants. Considering the opportunities that exist in and around Toronto, as well as the growth of population, Toronto is in high demand.
Other cities around southern Ontario are also very busy and growing rapidly, which all contribute to the demand for housing in Ontario and a high average price for homes in busy centres like Toronto and others like it.
While more remote parts of the province may not command home prices nearly as high as the GTA, southern Ontario’s home prices play a key role in pushing up the average price for homes in the province.
How Much Should You Spend On A Home In Ontario?
For the vast majority of Canadians, determining a budget for a home purchase is crucial to avoid wasting time looking at homes that fall outside their financial ability.
Here are a few things to consider to help you determine how much you can comfortably afford in a home purchase.
Make A Detailed List Of All Expenses
Do you have a firm grasp on your expenses every month? Sure, you might have a good idea of how much you pay for the heating bill or your cell phone bill, but have you taken into account all expenses that go out each month? Consider the following expenses:
- Car loans
- Student loans
- Credit card bills
- Car insurance
- Personal loans
- Miscellaneous expenses
Make sure to calculate exactly how much you spend every month and compare it to your income. That way you’ll have a clear idea of how much money you have left, which will also tell you roughly how much of your income you can dedicate to a mortgage.
Determine Your GDS And TDS
Your ‘GDS’ and ‘TDS’ are very important ratios to consider when it comes to how much of your income can be put towards mortgage payments. Lenders look at these numbers before approving borrowers for specific loan amounts.
Gross debt service (GDS) ratio. Your GDS is a measure of your housing debt — including the principal, interest, taxes, and half of your condo fees, if applicable — that you would be paying in comparison to your income. This ratio should be no more than 30% to 35%, or your lender may consider it too risky to lend you the amount you’re requesting.
Total debt service (TDS) ratio. Your TDS is a measure of all of your debt — including housing debt — that you would be paying relative to your income. This ratio should be no more than 42%, otherwise, you may not be approved for the loan amount you’re applying for.
Based on your GDS and TDS, your lender will determine how much of a loan amount you can get approved for. With this figure in mind, you’ll have a better idea of the price range you should stick to when searching for a home to buy in Ontario.
Calculate The Costs Of Owning A Home
There are plenty of bills that come with owning a home, which you should account for before you make an offer on a property. The following are some of the more common expenses that come with owning a home:
Your property tax rate will depend on where your home is located and its value. Each jurisdiction in Ontario has its property tax rate, which is multiplied by your home’s value to give you the fee you’ll have to pay every year.
In Toronto, for example, the current property tax rate for a residential home is 0.599704%. So, if your home is worth $500,000, for instance, your annual property taxes would be $2,998.52.
Lenders require a home to be insured for you to be able to take out a mortgage on your home.
Heating and cooling, electricity, gas, water, and cable are just some of the utilities that you’ll be paying every month to keep your home operational and comfortable.
Maintenance And Repairs
Things can start to break down after some wear and tear, which costs money to repair.
If you live in a condo, you’ll have the added expense of monthly condo fees, though these fees will cover some of the other expenses that you would otherwise have to pay if you owned a freehold home.
Ontario is one of the more expensive provinces in Canada to buy a home, especially in busy centres like Toronto. No matter which city you plan to buy in, be sure to take the time to assess your finances, save up for a down payment, and do your due diligence when it comes to purchasing a home that you can comfortably afford.