MoneySmart: Is buying a home out of reach for our generation?

During her two years as a bank teller, Kathryn-Lynn Raskina met a lot of people who were drowning in debt and struggling to pay their bills. It wasn’t because they weren’t making enough money. It was because they didn’t know the first thing about debt or about managing their money. She doesn’t want you to be one of those people. She wants you to graduate money smart.

With only a short amount of school left before I finish my degree, I have been thinking a lot about what I want my post-university life to look like. I am trying to figure out if I want to stay in Toronto or if I want to move to a different city in Canada.

One of the factors that I have been considering is the cost of housing. In Toronto, prices have been going through the roof and according to the Toronto Real Estate Board, the selling price of a house in Toronto will continue to rise this year. The selling price of a condo in the GTA is also going up.

I would like to get a place to call my own. I would also like to start putting the money I am putting towards rent, towards paying off a mortgage in the next couple of years.

But with the average Canadian student graduating with over $20,000 in debt and with sky-high housing prices, I have started to feel that, for our generation, buying a home might be nothing more than a pipe dream.

According to a January report by the TREB, housing prices will continue to rise in Toronto this year. The board forecasts that the average selling price for a house will be between $655,000 to $665,000. With new federal mortgage rules requiring a downpayment of at least 10 per cent, that means you would need over $65,000 just to buy a home.

These high prices have forced first-time buyers into the condo market, which has also gotten more expensive in Toronto over the past several years. The average price of a condo in the in the last quarter of 2015 in the GTA was $382,070, up by 4.1 per cent from a year ago according to TREB.

Despite these terrifying numbers, Barry Gollom, vice-president of mortgages and lending at CIBC, says owning a piece of real estate isn’t out of reach for our generation.

“It’s not easy,” Gollom says. “But it is attainable.”

Gollom says young people should start thinking about whether or not they want a house or a condo, even if they don’t yet have the means to start saving for a down payment. He recommends meeting with a financial advisor to talk about your long-term and short-term goals so that you can start planning early to achieve them.

When you are ready to start saving for a home, Gollom says it wise to set up an automatic savings plan, where a certain amount of money automatically is sent to your savings account, RRSP, or TFSA every month. Gollom says the amount you put away depends on one’s individual financial situation. But of course the more you can save the better.

When it comes to looking for a place to buy, you need to make sure you can afford it. Mortgages aren’t free money from the bank. They come with interest and even though we are currently living in a time of historically low interest rates, you still want to make sure you aren’t paying any more interest than you have to.

When you buy a home you don’t want your mortgage to be so high that you can’t save for retirement or support your lifestyle. “You want mortgage payments to work around your life, not have your life work around your mortgage payments,” Gollom says.

In today’s market, if you want to buy home you will also need to make some sacrifices.

In other words, you can’t have it all. At least not yet anyways. For instance, if you are hell bent on living in the downtown core this year, you will have settle for tighter quarters. But you will be walking distance from great bars and restaurants, and your commute to work will likely be just a hop, skip, and a jump away.

Or you could save your money and buy a house or condo in Ajax, Oshawa, or  Mississauga, where the average selling price of house and condo is a lot lower. Then of course you would have to take GO Transit to get downtown. But you would have a bigger home. It all comes down to what is more important to you.

Another option is relocating to another city. While nationally it has become less affordable to own a home, in several Canadian cities it has become more affordable. For example, in Edmonton it now costs an average of $100 more to rent a month than the average you would pay for a mortgage payment on a condo. This is according to a report by the National Bank of Canada. In February, according to the Canadian Real Estate Association, a condo sold for an average of $247,090 in Alberta’s capital.

Like everything else in life worth having, you need to put in the hard work to get there. The same goes with buying a house or condo. It just “takes discipline and education,” Gollom says. If your dream is to own your own home, start planning for it now and saving for it soon. It might not be in Toronto. But that may not be a bad thing. I have heard Alberta is beautiful. Blue skies all the time.

Featured image by Evelyn Thompson