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| Affording a HomeExplanation of median and average priceMany people would like to start building equity in their own home, but are held back by concerns about cost, especially when the media is quick to report on rising home prices and eroding affordability. These reports can be misleading, since the media typically report median or average prices without explaining that these figures are just that – median or average.Median PriceMedian Price is that at which 50% of properties sold were above that price and 50% were below. Median prices should be interpreted cautiously, as they are influenced by changes in the costs of homes, as well as changes in the characteristics and sizes of homes sold annually. The median price doesn’t give any indication of the spread of these prices. Many properties are sold at much lower – and higher prices, of course – than the median price.Average PriceAn average price is the total dollar volume of homes sold for a particular period, divided by the number of units sold. Average prices are typically reported for the sales activity in a given area for a given month, quarter or year and provided a snapshot of past activity. Average prices of properties sold in the past give only a limited indication of what housing inventory for sale is priced at today. An understanding of the housing in a particular community is needed to put average prices into perspective. For example, sales of a new subdivision or townhouse project of larger, upscale homes at high prices will bring the overall average price up, giving the impression that all housing prices have risen, when in reality, prices for the older, smaller housing units in the community may not have changed or may have even dropped.But can you afford a home?Given that buying your first home may be more affordable than you thought, are you yourself in a financial position to take this important step? In other words, how much can you personally afford to borrow? Because that’s what a mortgage is: a security for a loan on the property you own, an interest-bearing term loan to cover the difference between the purchase price of the house and your down payment.The first step towards establishing a maximum mortgage limit is to calculate a monthly payment that you can afford. Financial institutions do this by calculating your debt-service ratio: that is, they list all your loans (car, student, monthly credit card balances, etc.). The sum of these plus your mortgage payment (including principal, interest and taxes) should not exceed approximately 40% of your gross income. The mortgage payment and taxes should not exceed approximately 30% of your gross income. Confused yet? Take a look at CMHC's mortgage affordability calculator , which may be of assistance. . This information is provided by the London and St. Thomas Association of REALTORS®. The information herein is believed to be accurate and timely, but no warranty as such is expressed or implied. | |||||||||||||||
London and St. Thomas Association of REALTORS®, 342 Commissioners Rd.W., London, Ontario. N6J 1Y3 - Phone 519-641-1400 - Fax 519-641-4613
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