Let’s talk a little about Canada’s real estate market. We might as well start with Toronto and Vancouver, AKA Bubble Central.

What’s that? I’m being told 2014 Nelson would like to chime in. This is highly irregular, but I guess we’ll allow it.

GODDAMN YOU GUYS THE BUBBLE IS GOING TO BURST AND IT’S GOING TO BE BAAAAAAAAAAAD.

Wait, Nelson. One thing before you go. How’d you get access to a time machine?

YOU READ MY ARCHIVES YOU DOPE.

You’ll have to forgive the all-caps. 2014 Nelson was a little bit angrier than today’s version, who is all about calmness and cute kittens.

After many hours of research and some critical thought about my long-held assumptions, I began to realize about a year ago how wrong 2014 Nelson was about Canadian housing. The fact is places like Toronto and Vancouver have expensive housing because everyone wants to live there.

Say you’re an immigrant who’s won the right to come to Canada. Where are you going to go — Nelson’s hometown of 10,000 people in rural Alberta or a place filled with all other nationalities? Sure, the potential to be my friend is pretty strong, but I’m betting you’d pick the city.

I’m the first to admit a large city has all sorts of amenities my small-ass town just can’t offer. Our airport doesn’t even have a full-time employee. Our local hospital sends anything more complex than a runny nose to Calgary. Hell, our Wal-Mart isn’t even a Supercentre.

It’s basically a third-world country is what I’m saying. I’m going to push to get that on the next tourism poster. Wish me luck!

Now don’t get me wrong. I still wouldn’t be caught buying a place in Toronto or Vancouver. I just couldn’t bring myself to pay the premium. But I totally understand why someone would. And have you seen the rental market lately? Hot diggity damn.

Read this and weep if you’re a Toronto renter. The best cleavage in the world isn’t getting you that apartment. FINALLY, A CLEAVAGE REFERENCE ON FINANCIAL UPROAR. So you’d buy, because spending a lot to live in the city is preferable to being Nelson’s neighbor even though I promise I’ll totally throw all my trash into the other neighbor’s yard.

The rest of Canada

One of the most-cited affordability metrics for real estate is a simple as it is powerful. You take the average house price and divide it by average household income. Generally, a market that sits between 3-4 times earnings is considered reasonably affordable, at least historically.

Let’s take a look at national price-to-income ratios in Canada, at least until 2014. You’ll notice Toronto is on there. That’s on purpose.

Sorry about including Hamilton. What a cesspool.

Toronto — and many of its suburbs — are insanely unaffordable right now. Vancouver is even worse. Both of these cities are clearly skewing the average higher. Approximately a quarter of Canadians live in these two metro areas. This is a big deal.

Say the rest of Canada has a price-to-income ratio of 4x. As you’ll see, that’s not unrealistic. With interest rates as low as they are today, I’d argue carrying costs today are only a little more than they were in the 1990s and early 2000s when prices were 3x income.

Say you bought a $100,000 house in the 1990s. You made $33,333 per year and signed up for a standard 25-year mortgage. You paid 6%, because that’s what mortgages cost back then. It cost you $639 per month, or $7,668 per year. That works out to 23% of your gross income.

Note we’re excluding all sorts of home ownership expenses here.

Now it’s 25 years later and you’re buying a $200,000 home. You make $50,000 a year and again get standard 25-year mortgage. You pay 3.5%, which you can get from most mortgage brokers as long as your credit isn’t trash. You’re looking at a $998/month payment, or $11,976 per year. That works out to 23.9% of your gross income.

Affordable cities

There are plenty of cities where the average home costs approximately 4x median family income. Here’s a small sample:

  • Calgary: Average price $449k; median income $97k; P/I ratio 4.6
  • Edmonton: Average price $362k; median income $87k; P/I ratio 4.2
  • Ottawa: Average price $393k; median income $85k; P/I ratio 4.6
  • Winnipeg: Average price $303k; median income $68k; P/I ratio 4.5
  • Saskatoon: Average price $330k; median income $79k; P/I ratio 4.2
  • Regina: Average price $277k; median income $81k; P/I ratio 3.4

There are more as you get smaller, but you get the idea.

Naysayers will be quick to say I’m missing a lot of cities, not just Toronto or Vancouver. Montreal is a big one. The average price of a house there is close to $500k, while the typical family earns about $50k. Damn, Montreal. You gotta get your earning game up. Even Laval, the big suburb, hardly has cheap real estate when compared to average incomes. Quebec City, which has held a reputation for affordable real estate for years now, has a price-to-income ratio of close to 5x. Victoria’s P/I ratio is much higher than average as well. Anything remotely close to Canada’s three largest metro areas is expensive, too. And so on. There are lots of exceptions here.

Is Canada’s real estate really that cheap?

Canada is filled with many regional real estate markets. Some are not affordable, while others are surprisingly so. These metrics ultimately affect rents too, so your strategy should be simple — avoid markets with a high cost of living for ones that allow you to make a similar wage while paying less for housing.

Ultimately, it comes down to this. If you make the average family income and buy an average house in Ottawa, which has a 4.6 price-to-income ratio, you’re looking at a mortgage payment that equals 26% of your gross income (assuming a 5% down payment and a 3.5% mortgage rate). This is not terrible. Most people can afford this.

Toronto, Vancouver, and now Montreal are increasingly unaffordable. The rest of the country isn’t bad. It might even be affordable. And, as always, if you want really cheap real estate, check out Canada’s medium sized cities. If you can scratch together $100k family income in Medicine Hat, Lethbridge, Halifax, St. John’s, Moncton. or numerous other places, you’ll live like a king. Some sort of royalty, anyway.

To truly live like a king you’d need Nelson as your neighbor. I’d totally rub my balls up against whatever window pointed to your house.

Tell everyone, yo!