Meet Sara and Scott – your typical theoretical Torontonian couple. At 25, Sara is a recent university grad, and has a degree. Scott, age 27 is also a university graduate and is working as a software developer in an entry-level job in Toronto. This couple can consider themselves lucky; many of their peers are jobless and struggling with high debt loads. Together, they plan to buy a house in the future – but aren’t sure if it’s even feasible given the current market.
Good News On The Horizon?
While evidence shows otherwise, TD economists say that house prices in Toronto are expected to decline by 15 per cent over the next 2-3 years, which is great news for first-time home buyers. Even though the Toronto condo market is not short on supply – some would argue that it’s overdeveloped – single-family homes remain scarce. Growing land restrictions and high prices will likely keep that market low, too. Currently, the average price of a single-family home in the GTA sits at $568,768. A 15 per cent decline, however, could bring that price down to a more manageable $483,452 – and that means more first time buyers can access options with a bit more leg room than a condo.
How Toronto’s Job Market Factors In
Decreased home prices don’t matter much if you don’t have a decent income – and unfortunately, high unemployment rates are a stark reality for many first-time buyers in Toronto. During a recession, their jobs are the first to go and the last to return, states a TD Economics report by Francis Fong. “The disproportionate share of job losses among youths was more glaring during both the 1980s and 1990s downturns where upwards of 77.5 per cent of the total job losses were borne by younger workers,” he writes.
“Moreover, job growth during the 1990s recovery was dramatically slower for both the 15-19 and 20-24 year age groups. The employment rate did not even begin to recover until well into the late-1990s, giving these years the moniker of the ‘jobless recovery.’”
Other reports show that today’s youth are not only underemployed/unemployed, they’re also overspent. Rather than battle their way through a bleak job market, many choose to return to school to brush up on skills.
Given these circumstances, how then are today’s youth expected to save up for a home?
What It Takes To Buy a House in Toronto
Couples like Sara and Scott are lucky – they both have good jobs and make enough money that they can afford to put some aside each month. Still, those with similar circumstances need to make short-term sacrifices – and there are solutions for those not interested in living off Kraft Dinner. One wise move is to consult a financial advisor, who can suggest a number of strategies to grow those savings. For example:
- Take advantage of a TSFA and make monthly deposits (weekly, if possible)
- Invest in RRSPs, since doing so would allow them to withdraw up to $25,000 tax-free (provided it’s used as a down payment for their first home)
- Avoid unpredictable investments such as stocks
- Avoid term-driven investments such as long-term GICs or 10-year bonds
Another quick tip for home buyers on a steep budget? Check out the services of a mortgage broker – they can help you find the best mortgage rates out there, and as they’re paid by the lender, it won’t cost you a cent.
So if Scott and Sara want to purchase a single-family home in Toronto at the going rate of $568,768 and they want to avoid paying mortgage insurance, they’ll need to come up with a whopping $113,753 down payment. A 5 per cent down payment, on the other hand, would require a smaller sum at $28,438.
If prices really do drop by 15 per cent as predicted, though, those numbers would look a little different. First of all, the average price of a single-family home in Toronto would decrease to $438,452. It would require a down payment of $96,690 in order to avoid paying mortgage insurance. A 5 per cent down payment would mean a sum of $24,172. It’s certainly doable, but it would require a regimented savings plan and considerable sacrifices. Is home ownership even logical at this point?
Is It Really Time To Buy?
Given the current state of the housing market, coupled by the fact that Gen Y-ers face job uncertainty and mounting debt, does home ownership even make sense? The average price of a single-family home in Toronto has risen by 600 per cent in the past 30 years, however the cost of rent has merely doubled. Factor in property taxes and home repair costs (an average of 3 per cent of your home’s value per year), and it seems many young would-be home buyers are putting off that first purchase and sticking to month-to-month options.
So what’s the verdict for buying in the Big Smoke? Until we see that fabled 15 per cent decrease, many may be better off saving their money and renting for the time being. Home ownership isn’t the only way to build equity – sometimes it’s best to stick to smart investments and saving. Eventually, it will be time to buy. Besides, what’s the rush?
Are you considering the purchase of your first home? We can walk you through it – from offer to closing. Check out the First Time Homebuyer’s Guide.