Toronto is an expensive place to live as a young person. The housing market, for lack of a better term, is bonkers.
The dream of homeownership may be alive and well in some Canadian cities, but in the Greater Toronto Area, it’s feeling increasingly out of reach for many people.
Despite it all, it’s still possible to buy a home in Toronto without a high-flying salary or resorting to a hyper-frugal budget. We spoke with Tia Pham, a Toronto-based realtor, on what you can do if you’re struggling to get started on the property ladder.
So, what’s going on out there?
According to Pham, there's currently a disconnect between the amount of people looking to buy and those looking to sell.
“Lately, I’ve been working more with buyers than sellers,” she says. “The demand is definitely there.”
Naturally, that's pushing up prices.
The other part of the equation, Pham says, is a lack of supply.
“You just don’t see as many listings now as you used to even a year and a half ago. And price definitely affects everything. People set their budgets and when they go out to look, they look where they want to look within that number first. But often, these places just end up selling for crazy amounts of money and their budgets were nowhere near that amount. It’s frustrating.”
So, that brings up the obvious question: do buyers have to readjust their expectations?
“People definitely have to readjust,” she says. “When we think of a million dollar house now — you're not going to get what you thought you would years ago — it's not going to be a renovated, two-storey, four-bedroom home. It’s going to be a little bungalow that needs some TLC.”
Pham also mentioned that, while she hasn’t seen it enough to notice a particular pattern or a trend, she does know of people buying in less conventional ways — like families or friends buying together in order to afford it.
“I’ve also seen a lot of Torontonians moving west to Hamilton because it’s cheaper,” she says. “The tradeoff though, is now you have to commute. Another tradeoff of going out there is that they have higher property taxes than Toronto does.”
But not everyone wants to move to Hamilton. And if you don’t, Pham has some tips on how you can afford a home in Toronto.
1. Buy a pre-construction condo
This could be a very good option for someone who has money saved up and is willing to be patient, Pham advises. Buying pre-construction can help you avoid bidding wars. You also tend to get a better price.
“That way, they know what they’re paying and don't have to compete with anyone else for it, she says. “Then, they can take the two or three years it takes to build it to save up even more money to put towards their mortgage.”
2. Don’t buy until you’ve saved 20% of your down payment
This one is key. If you buy a home in Canada and do not put down at least one-fifth of the cost upfront as a down payment, you’re required to pay for mortgage default insurance every month from the Canadian Mortgage and Housing Corp.
“You’ll avoid mortgage insurance, which is a significant amount,” says Pham. "While this cost could be paid as a single lump sum, the amount is often added to the mortgage principal and repaid over the life of the loan. For example, with 10% down on a $850,000 home, you’re looking at almost $24,000 in mortgage insurance. That’s a hefty amount to pay."
3. If possible, stay at home for as long as you can
It used to be that once you graduated school, you’d go out and rent for a while as you saved up for your down payment allowing you to buy a home. But recent data shows that it now takes nearly 20 years for the average person to save up for a down payment.
As a result, Pham recommends that if you have family in the city, live at home as long as you can. It’s a sacrifice worth making that will help you save for your down payment and achieve your long-term real estate goals.
4. Reassess how much living space you need
Most people want the traditional single-detached home with plenty of space — but do they really need it? No, says Pham. And it’s perfectly OK to start off in a condo.
“I usually tell people that just because you can spend $700,000, doesn’t mean you should,” she says. “You have to remember that there are going to be land transfer taxes, there are going to be fees, moving costs — and you shouldn't be house poor. You should set aside money for emergencies. If you end up buying a house, it’ll be more likely that you’ll need to tap into that emergency fund compared to a condo."
5. Cut out the amenities that aren’t necessary
There are plenty of small ways to cut back on spending to help you save (all of us have been told to stop buying that daily coffee). But a lot of people overlook the biggest money-drains when it comes to saving. Pham, for instance, recommends to avoid driving if you can, and if you own a car — sell it.
If you live and work downtown, you probably don't really need a car. And ditching your car could open up even more savings — if you buy a condo with a parking spot, rent it out to help pay your mortgage. Be creative. Any additional income where you can find it is going to go a long way.
6. Commit to working with a real estate agent
There are a growing number of websites out there that let you shop around for a home on your own. And while it's definitely an option, Pham says real estate agents give you an edge in the hunt.
"It’s perfectly okay to browse the MLS by yourself and pop by open houses," she says. "But, if you’re a serious buyer, you’ll want a head start before your competition. There’s about a 24-hour lag between the time I add a new listing, and when it shows up publicly on MLS. In that time, your opportunity could be gone. If you’re working with a realtor, they can notify you immediately — potentially before the home is even listed."