Earlier this year, Meghan Morrison and her fiancee made the difficult decision to add two hours of commuting onto their day in order to pursue their dream of owning a house.
The couple could have purchased a condo in the Toronto area, where they both work, but Morrison says they wanted more space to be able to engage in their hobbies and, eventually, start a family.
"We looked at new builds in Toronto and it’s just like, oh my gosh, $400,000 for 600 square feet," says Morrison, 26.
In January, the couple will be moving into their newly purchased, two-storey brick home in Barrie, Ont., complete with a two-car garage and a large, fenced-in yard for their French bulldog to play in.
"It was a really tough decision," Morrison says. "We struggled with it for a long time. But we just couldn't see ourselves living in a condo forever."
With home prices in Toronto, Vancouver and their surrounding areas soaring increasingly out of reach, many first-time buyers are being forced to either move out of the city or reconsider their home ownership dreams.
But in oil-producing provinces such as Alberta, Saskatchewan and Newfoundland — where the plummet in the price of crude has hampered economic growth — the picture is starkly different.
Phil Soper, president of Royal LePage, says sales volumes are down about 20 per cent in Alberta from their long-term average.
"The regional disparities are as great as I've ever seen them," Soper says.
"Depending on your views, it was one of the toughest years in the housing market since the Great Recession, or it’s crazy overheated and the government should step in and do something about it."
CIBC deputy chief economist Benjamin Tal predicts softer markets in Toronto and Vancouver in the year ahead, as government changes — including the 15 per cent tax on foreign buyers in Vancouver and federal mortgage rules changes — are felt.
Both the B.C. and Ontario governments have also announced efforts lately to help first-time buyers get into the market.
The B.C. government launched a plan to offer loans to help first-time homebuyers get into the real estate market. The loans are interest-free and payment-free for the first five years.
"Clearly 2016 has been, from a policy perspective, a very important year that will impact the trajectory of the housing market in the coming years," Tal said.
Soper says price growth is expected to slow in the Greater Toronto Area, and possibly reverse in Vancouver, but there could be a return to moderate growth in Alberta and other oil-producing regions.
The new mortgage rules introduced by Ottawa in October, which require all insured mortgages to undergo a stress test, will likely cause some would-be buyers to keep renting instead, Tal said.
"I do think that the rental market will be even tighter," he said.
That could spell trouble for people like Nicole Silver, a 23-year-old marketing and public relations professional in the Toronto area.
After spending years living at home with her family to save money, Silver was ready to put down a $60,000 to $70,000 downpayment on a condo this fall.
But she soon discovered that even condo prices had climbed out of her reach.
"If I had done this a little bit earlier, like a couple of months earlier, maybe it would have been better," Silver says. "I feel like every month it's getting worse and worse."
Although she's still keeping an eye on the market, Silver says she's more or less resigned herself to renting.
"I don't want to just be paying rent to live in someone else's home," she says. "I'm not very happy with that, but it's just the reality."
Heather Rollwagen, assistant professor of sociology at Ryerson University, says home ownership is important to many Canadians because it's culturally constructed as economic security.
"I think people are kind of told that renting is irresponsible somehow," Rollwagen says.
However, buying a property is not necessarily more economically secure, Rollwagen says — particularly for lower income earners who take on large debts and therefore become vulnerable to changes in interest rates.
"I'm eager to see, over the next 10 or 15 years, how millennials' attitudes are going to drive changes in the value of home ownership, because they're the ones that are really starting to opt out," she says.
PRICED OUT OF THE MARKET? THREE HOUSING ALTERNATIVES FOR HOT MARKETS
TORONTO — With the sluggish economy and tightened lending rules, being priced out of the real estate market is a reality for many, particularly those in Toronto and Vancouver.
But whether your finances are limited or you simply don't want to overextend yourself, there are other options.
Move to an affordable market
For home buyers willing to commute or relocate, affordability may be within their grasp.
Take Toronto, for example, where recent statistics show the median family income is $75,270 and the average home costs $762,975. Using these figures, prospective homebuyers wouldn't be able to qualify for a mortgage.
"The maximum purchase price this median family's income could support is $620,935, and they'd need to put six per cent down," says Rob McLister, founder of RateSpy.com.
But affordability starts to come into the picture about an hour west of the city in the Hamilton-Burlington area where the average home is $507,131. A family earning $75,270 could qualify with a minimum down payment of $25,713. Assuming a typical five-year 2.5 per cent fixed-rate mortgage, monthly payments including mortgage insurance would be about $2,231 over a 25-year amortization.
Those willing to leave the Greater Toronto region altogether could see their mortgage costs slashed even further.
In Ottawa, where the average price for a home is $366,639, a family earning $75,270 could easily qualify for a mortgage with minimum down payment of $18,332. Monthly payments with a five-year 2.5 per cent fixed-rate would be about $1,614 over a 25-year amortization.
Keep in mind that additional differences in factors such as commuting costs and land transfer and property taxes would also have to be taken into consideration, McLister notes.
Co-buy a home
Buying a home with a friend or family member is an option 24 per cent of millennials are considering, according to a recent RBC survey.
By combining incomes, individuals can qualify for a larger mortgage and split the closing costs and down payments, says Alan Aronson, a sales representative for HomeLife/Realty One Ltd. in Toronto.
A single person would need to earn about $143,342 per year to qualify for the typical $800,000 home, Aronson said. But if two lower-earning individuals sign a co-buying arrangement and both contribute five per cent down payments toward a five-year three per cent fixed-rate mortgage, they would each have monthly payments including mortgage insurance of about $1,744 each over a 25-year amortization.
And in addition to splitting the $24,400 land transfer tax which would apply in Toronto, co-buyers would also split property taxes, not to mention utilities and insurance costs.
If that sounds appealing, Aronson says, be aware that if one individual starts defaulting on payments you risk losing the house to the bank or being forced to sell earlier than planned.
Relationships can also be volatile, he adds, "especially where money is concerned."
His advice is to document rules for all the possible "What if?" scenarios in writing with a lawyer prior to a purchase. He says that can "save money and headaches if anything bad things happens down the road."
Rent indefinitely
In heated housing markets and in certain situations, renting can be a better financial decision, says Jason Heath of Objective Financial Partners, "if you ignore the practical and psychological benefits of home ownership."
Heath describes a Vancouverite looking to upgrade from a starter condo to a typical detached home in the city valued at $1.5 million. After generating a 20 per cent down payment for $300,000 from the condo sale, mortgage payments would be $5,376 per month, assuming a 2.5 per cent interest rate and 25-year amortization.
However, for those unwilling or unable to commit to such a large mortgage, investing that $300,000 instead of using it for a down payment could pave the way for a secure retirement.
By avoiding the $28,000 B.C. land transfer tax and saving $1,500 in legal fees on closing, says Heath, that money could be worth $487,741 in 10 years assuming a four per cent after-tax rate of return.
He adds that rent on that $1.5-million home might only be $3,500 per month versus mortgage payments of $5,376 in the first five years and $6,674 for the next five years if rates rose to five per cent. Savings on property tax, home insurance and maintenance might add up to another $14,000 per year.
Heath says if you were to invest that extra cash flow from renting instead of owning at the same after-tax four per cent return, that could be worth another $522,001.
In such a scenario, you would have $1,009,742 in your investment account after 10 years.
