Every day, as I round the corner from my bus stop, I’m flooded with gratitude at the sight of my house — the house I own with Matt and the bank. The moment we saw it, nearly four years ago now, we knew it was our dream home. With our family now complete at two kids even, were looking to move up from our little semi into our “forever house.” It look some adjusting of our money habits (as long-time readers of this blog are already well aware!), but we knew we could make it work.
But for an increasing number of Canadian families, owning a home may feel like an impossible dream. New survey results from the Royal Bank of Canada show that home ownership is becoming less affordable, particularly in the pricey Vancouver market. The Globe and Mail reported today that “[f]or the second quarter in a row affordability slipped across the country as prices rose and mortgage rates moved marginally higher.” The survey looked at how much of a family’s pre-tax income is required to cover the mortgage and other costs of owning a home — and in Vancouver, the average household would use up 92.5 percent of pre-tax income to cover payments on a bungalow. In Toronto, the figure is 51.9 percent; in Montreal, 42.6 percent; in Ottawa, 41.2 percent; in Calgary, 37.1 percent; in Edmonton, 33.8 percent.
The kicker: Personal finance experts recommend you not spend more than 32 percent of your pre-tax income on mortgage payments.
Those figures are grim, but remember, the survey is looking at average prices. So you can use several strategies to make home ownership more affordable. Namely:
– Don’t go for the trendiest neighbourhood. Do some online research to find out which neighbourhoods are considered “up and coming” or “under-priced” in your area, and see if any of those will work for you. (It may not make sense to move to a neighbourhood that requires you to drive an hour to work each day, as the gas prices could cancel out your savings.) In Toronto, many young families lust after Leaside, which is just over the bridge from my neighbourhood — but a home similar to ours would easily have cost us 50 or 60 percent more.
– Plan to spend less than your “maximum.” When a lender offers to lend you $500,000, they’re looking at it from a risk-management perspective — that’s the maximum amount of money they think you won’t default on. That doesn’t mean you should spend the maximum. Downgrade your expectations, and you’ll breathe a bit easier when your mortgage payments come out of your account.
– Ugly is good; rickety is not. Usually, the best deals are cosmetically challenged homes that are structurally sound and need no immediate work. A beautifully staged home that you fall in love with because you love the style may be hiding a multitude of pricey sins (old furnace, outdated wiring, leaky roof). And when you go for ugly, don’t feel you have to fix everything at once. Our old semi had no fewer than eight different styles of tile. But we lived with it for several years, fixing things up gradually as we were able to save up for the renos. Don’t add the cost of any repairs that aren’t necessary to your mortgage.
If you own a home, what were some strategies you used to make ownership more affordble? And if you’re not yet in a home of your own, what are your thoughts on the rising price of housing in Canada?