Stuck In the Starter Home: A Canadian Conundrum

Stuck in the Starter Home

RateSupermarket.ca finds buyers can expect to pay $3,000 more monthly to move up in the market 

(Toronto, Ontario): June 10, 2015: In Canada’s most competitive markets, steep affordability often limits first-time buyers to condo or townhome purchases. While these dwellings are traditionally considered to be “starter homes”, many buyers are in it for the long haul, as rising prices push a larger abode out of financial reach.

RateSupermarket.ca, Canada’s comprehensive rates comparison resource, finds homeowners looking to upgrade from the average condo to a detached house in Toronto and Vancouver can expect to pay at least $3,000 more each month in mortgage payments – even with today’s record low fixed mortgage rates.

Increase in mortgage payments per dwelling type: 

City Average Condo Resale Price Average Condo Mortgage Payment (2.74% 5-year fixed) Average Detached House Resale Price Average Detached Mortgage Payment (2.74% 5-year fixed) Difference in Monthly Payments
Toronto* $422,947 $1,946 $1,115,120 $5,130 $3,184
Vancouver** $396,900 $1,826 $1,104,900 $5,083 $3,257

Buyers are Discouraged – But Not Dissuaded

According to RateSupermarket.ca’s Not Your Mother’s Mortgage poll, 83 per cent feel that it is less affordable to buy a home today, compared to generations past. Of those respondents, 28.9 per cent felt a condo or townhome were their only real estate options. However, this sentiment increased to 43 per cent for respondents in the millennial age group (ages 20 – 34).

While one option for this group is to reassess their rental options, it’s not a popular tactic, with 87.3 per cent of respondents feeling that renting does not provide the same value of home ownership.

“Not surprisingly, such a gap in affordability has left buyers feeling their market options are increasingly limited,” says Penelope Graham, Editor at RateSupermarket.ca. “However, prospective buyers still believe home ownership provides the greatest value for their hard-saved funds, and they’re willing to do what it takes to break into the market – regardless of the affordability challenges.”

Renovations Provide Alternative to Real Estate

Faced with limited market options, many existing homeowners are turning to renovations to create the space they need. RateSupermarket.ca’s Renovation Rookie’s Cheat Sheet provides tips and insight for improvements proven to add the most value to your home.

RateSupermarket.ca’s Tips for Affording Renovations: 

  •  Save funds in a Tax-Free Savings Account: TFSAs offer a tax-sheltered way to save up to $10,000 annually. Savings can remain liquid in the account as cash, or can be further invested, with all earnings remaining tax free. Funds can be accessed at any time, and used for any purpose.
  • Utilize the Home Buyer’s Plan: If you are purchasing your first home and intend to do renovations, the project can be funded with savings kept in your RRSP. This program, which is offered through the federal government, allows up to $25,000 to be withdrawn from retirement savings tax-free, and can be used for anything related to the home purchase, including renovations, landscaping and even home décor and furniture. Note that funds must be paid back within a 15-year period.
  • Tap Into a Home Equity Line of Credit: Homeowners who have built up equity over time can re-borrow up to 65 per cent of their loan-to-value ratio, at a competitive interest rate compared to personal loans, lines of credit or credit cards. HELOCs are a form of revolving debt, and the funds can be used for any purpose.

*Toronto Real Estate Board GTA REALTORS® REPORT MONTHLY RESALE MARKET FIGURES: http://www.torontorealestateboard.com/market_news/release_market_updates/news2015/nr_market_watch_0515.htm

**Greater Vancouver Real Estate Board May 2015 Monthly Statistical Report: http://www.rebgv.org/monthly-reports?month=May&year=2015

Related Topics

Buying A Home / First Time Home Buyers / Lifestyle / Lifestyle News / Mortgage News / Mortgages / RSM News

2 thoughts on “Stuck In the Starter Home: A Canadian Conundrum

  1. We lived in the GTA for several years, feeling the stress of high home prices. We recently moved to a much cheaper market, Windsor, Ontario, and we’re thrilled at how cheap the homes are here! For those who work from home, that’s a good option!

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