House(s) of Cards?
Posted by Beckie | Filed under Beckie
Over 10 years ago, back when we were DINKs (double income no kids), my husband and I felt it was time to look for a house in various Toronto neighbourhoods. We felt our budget was generous, with substantial down-payment (over 20%). We trudged through open houses, perused MLS listings from our agent, and went to specific listings with most of our wish list features. I didn’t feel like our list was insane…3 bedrooms, 2 bathrooms, no knob and tube wiring. Most places we saw were dilapidated to say the least, and would require huge efforts to renovate. I was shocked to hear that one of these “dumps” (I admit, it had “good bones”) we saw in an Open House sold for well over asking (450K). It needed sooooo many renovations, and didn’t even have a kitchen (we are talkin’ a sink, a hot plate and a few cupboards).
One day my husband suggested buying from a new development in the ‘BURBs (outside of Toronto). In the span of a few hours we walked into some model homes, looked at plans and bought a house. Ok, maybe not that fast, but we mulled things over, investigated the builder, and a few days later we bought a 2400sf, 4 bedroom house (built within 6 months). I had also made the switch to public libraries and the timing was just right to find a job not far from our new house.
Fast forward 10 years to present day, and interest rates are still very low. At least according to MLS and newspapers featuring recent sales, housing prices in big urban centres, mainly Toronto and Vancouver, are now out of reach from all but the top income earners. One would think that was true, given that an average looking house (possibly semi detached but in a nice neighbourhood) can sell easily for 800K.
One of my guilty pleasures is that I watch TV shows on HGTV like “Property Virgins”, and it seems that most people they feature are putting waaaay less than the 20% you would need to avoid having to purchase extra CMHC insurance. So what happens to people after they have kids and their income goes down (or they are paying for childcare=big bucks)? What happens to people if interest rates increase? Is there a POP coming?
I look occasionally on MLS and see my dream house in a dream neighbourhood every so often. The rational part of me knows we made the right decision to buy a house within our means in the ‘burbs. The irrational part of me says we shoulda just upped our budget and bought in the city. In any case, if we were buying a house NOW, well…let’s just say we’d be moving really far away and having to commute a really long time to work. Yet there always seems to be a lot of “For Sale” signs up in every neighbourhood I drive through, so somebody must be buying.
Do tell… How do you think the average young people of today are buying houses?
In her late 30s, with a husband and two small children, she lives in the ‘burbs of Toronto. A librarian, Beckie works part-time. In her free time, “I am a chauffeur/part-time cook/boo boo kisser/housecleaner and laundry lady extraordinaire. I do most of the household shopping and financial planning.”
June 18, 2012 at 6:28 am
Beckie, my fiance and I discuss the same question regularly. In our old neighbourhood (which I loved – lots of mature trees, pretty houses, gardens, near the Danforth), the properties start at 500k for tiny little places with no parking and places needing work. Most homes go for much higher than that, and when I looked at the demographics of the neighbourhood, it was almost exclusively younger families with kids! One of the old guys in the apartment building we lived in had commented that there has to be help from mommy and daddy for these young adults to be able to afford those places.
I’ll be 30 in 2.5 years, but there is no way we’ll have a house at that point. At this point, the goal is for in 5 years, but we’ll see what happens. My fiance wants to change jobs, but is waiting until after this year’s responsibilities are paid for, since he may have to take a pay cut but still needs to be able to pay for his portion of our expenses.
We’re currently DINKs, but our income together is much less than those top earners! Heck – our income together is still low middle class – one of my friends earns more than the two of us combined!
With our 5 year plan, our goal is to buy a house, but I’m reconciling myself to the fact that our house will not be near work, nor will it be in my desireable neighbourhood. The only way we can afford something is to be on the outskirts of the city. We’re saving, sure, but we’ll never be able to afford a 500k home, nor would I want that large of an expense. Even if we had an inheritance (surely that’s how some of these other young adults are buying property), I would rather buy more of the house than simply move to a coveted neighbourhood where house prices are outrageous for what you get.
June 18, 2012 at 8:12 am
My partner & I just bought our first house. Of course, we’re not in Toronto but in a much less expensive community west of Toronto. We spent about six months looking with an agent, we put 10% down (so we’re paying an insurance premium) BUT we bought something that we could afford, not what the bank said we could afford. We spent about 60% of what we were pre-approved for. Before doing a pre-approval, we made a rather elaborate spreadsheet of what it costs us to rent now and what owning would cost. We have a great lifestyle and we didn’t want that to significantly change so we figured out what the max total living expenses we could handle and how much house we could buy based on that.
In the end, we went a touch over what we had originally planned to spend but we got a great interest rate and ended up purchasing something that is completely move-in ready. Because of that, we’re actually slightly under the total living expenses we set as our max.
I certainly don’t think we’re the norm, though.
June 18, 2012 at 10:35 am
I’m 28 and bought my first house last April. I only put 5% down and rolled the CMHC premium into my mortgage. I went with a variable rate mortgage which is currently still at 2.15% which has allowed me to get some extra money in the bank and also make $200 a month extra payments towards the mortgage prinicpal. I live and work in Durham. Houses are a lot more affordable out this way! Even with my mortgage, property tax and utilities it is only about $150 more per month than renting a basement apartment. It’s a good time for young people to buy, in my opinion.
June 19, 2012 at 2:57 pm
How is it a great time to buy when: the market is at the top, are at least, very close to it; NO ONE is immune from lay-offs or volatile markets; the economy is stagnant and 2-3yr outlook isn’t much better.
How can “young” people, who haven’t yet hit their prime earning years afford to buy at the top and hope that they can keep making payments when interest rates rise…which they will? In this economy, there are no guarantees, especially no guarantee that you’ll be employed in the next 5 years, nor that you’ll receive steady income increases either.
Having said that, you’re the exception in that you immediately started putting down extra payments on the mortgage while most other buyers would be boozing it up and buying expensive furniture instead. And buying in a more affordable market certainly helps.
To answer Beckie’s question: many people are are getting help from their parents, the result of entitlement that GenYers have acquired. They’re also leveraging themselves, putting down very little and not making any plans to pay it back as quickly as possible.
June 18, 2012 at 11:32 am
My husband and I also recently bought a home, and moved in 2 months ago. We went over our initial budget but definitely under our pre-approval. It was important for us to have a great school district, a sense of community etc so we bought in an “expensive” area outside of Toronto (Richmond Hill in York region) but it was totally worth it, imo. We had looked for homes in Toronto for a long time with no avail and made the leap to the suburbs. We also did not have 20% down but put in 10% and rolled the CMHC into our mortgage.
With our budget we are still saving 15% of our post-tax income so I believe we are doing ok as DINKs…now we are thinking ahead on how to budget should we start a family.
As for how many young people are buying homes…I think most people have a lot of help from their families as I would say most of the people we know have had large down payments gifted to help with home purchases. My husband and I did not have help but I would say in our circle, we are not the norm.
June 18, 2012 at 1:15 pm
This is not a problem that only 20 or 30 somethings are facing. My husband lost his job and we considered relocating to Halifax. I lived in HRM for years as a single parent AND owned a house. Now the same area that I owned in single was well out of our means as a double income family, still with only the one child. I am now making literally twice what I was then and the jobs in my husband’s field paid well. But still in order to move back and purchase, we would have to live 40-60 minutes outside the city. We decided to stay where we are, he took a pay cut but likes his job so that makes it ok. And we bought a fixer upper for well below market and made it our dream house. Urban centres are out of reach for almost everyone in every age bracket.
June 18, 2012 at 1:26 pm
I think Toronto and Vancouver are very different stories than less expensive parts of the country. I live in London, Ontario, and the cost of living is quite reasonable. Of course, I don`t make the salary that I could if I lived in Toronto, but even taking that into consideration, if I took a job in Toronto, we couldn`t buy half the house we bought here for double the mone and the increased salary wouldn’t make up for the difference in cost of living by any stretch. We didn`t have any help from parents or inheritance, just saved up, bought a modest home and did some upgrades over the past 6 years.
As for those plentiful `For Sale`signs… could it be that many are realizing they are house poor, and trying to get out from under their mountain of debt?
June 18, 2012 at 2:07 pm
I’m a Realtor in Hamilton. I can tell you, Toronto is beyond me. Here in Hamilton, you can get a wonderful 3 bedroom 2 bath home complete with backyard and most updates plus garage for under $300k. And most are well beyond that. I personally live with my hubby and 3 kids in a 4 bdrm 2 bath townhouse near everything and full hwy accesible etc. We pay $480 per mo on mortgage (bi weekly pmts) and most here only do 5%….as it doesn’t up your regular mortgage payments by much via cmhc insured. I am continually amazed when my colleagues in TO speak of this insane market there and I am glad to be where I am!
June 18, 2012 at 2:12 pm
well, we live in calgary, which is growing like a weed, we have a fantastic deal on rent right right now ($900 a month for a 3 bedroom townhouse). my husband is 37, im 31, we have two kids, 15 and 7 years. We both work fulltime and my husband works part time for extra money for savings. we decided to wait 4 years to buy, we are going to use that time to save up the minimum 20%, i don’t want extra insurance. and the bonus is we are very near to all the post secondary schools right now, so our oldest will finish her program before we move, because when we do move, we can’t afford to buy inner city where we are now, we have to buy out on the outskirts. I’m ok with it thou, I have fibromyalgia so i want to custom build my home to accomodate my needs as my condition gets worse.
June 18, 2012 at 2:23 pm
If I were in the market to purchase right now… I wouldn’t. The housing bubble just keeps growing here. I would wait until it burst and prices dropped.
When my husband and I were expecting our first child, we bought our house. It wasn’t our dream house, but it provided enough room for the family that was on its way. We spent the first two years of our marriage living off my husband’s income and saving mine. My earnings went into our down-payment and we were used to living on his income so I could be a stay-at-home mom.
We decided how much we wanted to spend overall by figuring out what we could afford with a 15 year mortgage. (We did not want to live our life in debt!) We compromised and bought a semi instead of a bungalow in St Catharines, but we only spent $110,000. (It’s now worth $170,000.) We ended up paying our house off in 8 years and are very happy to continue to rear our family in a house that is all ours!
People need to change their mindset about houses… Our parents lived their entire lives with a mortgage. We don’t need to if we’re smart about our money.
June 18, 2012 at 2:51 pm
I’m in Hamilton, two years ago we bought a fixer-upper in a “transistional” neighbourhood and did only 5% down. We needed the extra cash to pay for renovations, most of which we did ourselves.
It was either 5% down or fund the renovations with a line of credit. Paying the CMHC made more sense for us than paying the higher interest. We’ve also increased our mortgage payments by 15%.
I have no idea how our friends with kids are paying for their new builds in more expensive areas. One mentioned that their parents paid for their wedding, and all the wedding gifts paid for a downpayment.
June 18, 2012 at 4:28 pm
I think my stress levels would be going rampant if I lived in the GTA, but for some maybe living outside of the GTA is not an option, so what you have left is renting or buying a cheap property that might need a lot of work. The trouble starts is that if you do the latter, you best have the money to do the repairs from your savings, doing so on a line of credit will just add to your monthly payment misery and you might decide that you are stressed out and need that badly needed vacation to Cuba (Mastercard $2000) and now you have a rainbow of monthly payments and a chance to default because you are in debt up to your neck. What you should do is buy a property that is sustainable with 1 income, should God forbid either one of you lose employment, you won’t be stuck having to struggle. Paying 3% CMHC fee is ok to do in the GTA because apparently with no end in sight property values are increasing much more than they are say in Hamilton, Kitchener or St. Catharines and your payments on a $200.000 property will only be u $25 more per month because of it. Even if the property values reverse, rent that place out and go live somewhere cheap where you are renting as well. Don’t default…as history will have it, markets reverse then come back up.
June 18, 2012 at 4:41 pm
My husband and I just bought in Calgary. We budgeted what we could afford in a home knowing that we wanted to have kids right away. We only put down 5% but it was worth it to us since the housing prices just keep going up here and the interest rate is low. We bought a house within our budget, which included kids for when we have them and it was half of what we were actually approved for. I would love to buy a different house with all the things I’d like to have but I’d rather not be in debt to get it unlike a lot of other people I know have.
June 18, 2012 at 5:30 pm
My husband and I live in Edmonton, Alberta, and we built our home, a great 3 bedroom, 2 bathroom townhouse in a beautiful parkland area for $250,000 (10% down). We were both 22 years old when we bought our house, which really surprises a lot of people. I think a lot of people my age can be quite irresponsible with money, but I don’t like the stereotype that we all just use credit to buy our way or that we live off other people. My husband and I worked since we were teenagers to be able to buy a house at such a young age, even when we were going to university full time. We are almost 25 years old now, and we still opt to take public transportation vs. owning a car because of the cost, and of course we don’t take huge vacations every year, but we know that if we save up and work hard, we have a great life ahead of us. As Gail always says, you can have everything you want, just not all at once! I started watching her show ‘Til Debt Do Us Part when I was 19 years old, and she truly taught me about money and the importance of saving vs. spending. Thanks Gail!
June 18, 2012 at 5:34 pm
Wow… so just a single person of all commentors so far actually bothered to save up the 20% down. There’s your answer right there. This whole boom has been financed by a mountain of debt.
We are staying out of the market until we have our 20%. Maybe even longer if this lunacy persists. Once the gov’t shuts off the credit taps this thing is done.
June 18, 2012 at 10:56 pm
I bought my house 6 years ago with 40% down, having waited till I was about 28 (was renting). I had a plan to pay it off in 10 years, but found that I hated having the debt. I squeezed every cent with a computer budget and lived like a pauper, especially the first few years – putting everything saved toward the mortgage. (I saved bus tickets for rainy days.) As the 5 year term got closer and I realized I could pay it off by the end of term, it really motivated me.
Now it’s been paid off for about a year, and I’m sorry to say that I haven’t quite maintained my frugal ways. In fact, the only money that I’ve actually managed to save is the mortgage payments that I auto-transfer! Ah well… I look back on those early days and hope that I don’t have to do that again. It didn’t seem so bad at the time, though.
June 19, 2012 at 11:19 pm
I live in a small city where homes are still relatively affordable. But overall housing still goes up in cost. I think one of the answers for young people is to rent out part of their home. You can often get > 50% of your monthly mortgage payment in rent. We purchased a renovated older home with a full 1 bdr basement suite. We use the space for ourselves ( to run home-based businesses) but I think the resale will be good when/if we move on because of the income generating potential.
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