With the average price of a house in Canada now topping half a million dollars – much higher in prime real estate markets such as Toronto and Vancouver – can millennials in the 18 to 34 year age bracket realistically expect to be able to purchase a house of their own?
“The first tip that I would give to millennials would be to think rationally about this issue, not emotionally,” says Jonathan Rivard, a financial adviser with Edward Jones. “The first instinctive reaction when people see returns on real estate of 30 per cent in Toronto might be to feel they are missing out on something and have to get in the market now or it will be too late. But my advice would be to sit down and review your financial and life situations before making any kind of decision. A lot will depend on individual circumstances.”
The facts are that more than half of first-time homebuyers in Canada are millennials. A recent global study by HSBC has found that about a third of millennials in Canada own a home but many of them had to go to their parents for financial help to get into the market.
The study further found that 82 per cent of non-homeowner Canadian millennials intend to buy in the next five years but only half of them have set an appropriate budget.
Once you’ve decided that you want to try and buy, see how much you can afford and get pre-approved for a mortgage. Getting pre-approved will signify you are a serious buyer and will help you scope out properties in areas that you know you can afford and act immediately if you see something you like without losing time applying for financing.
Rates currently are at historically low levels but likely won’t stay that way forever. Use a mortgage calculator to determine exactly how much you can afford and how any changes in interest rates would afford your ability to pay your mortgage plus other expenses.
Prioritize the timing and location of your search. April traditionally is the busiest month for real estate transactions when buyers are out and the multiple listing services are red hot. Choose a slower time of the year when there might not be as much buyer activity and sellers may be hungrier.
Also consider moving out of the city into the suburbs and/or smaller, newer communities where you’re likely to get more for your money.
Make sure you have a sizeable down payment. The bigger the down payment the lower the mortgage and the less interest you pay over the amortization period. Most professionals will recommend a down payment of at least 20 per cent to avoid paying homeowner insurance but you can purchase with as little as five per cent down.
If you need help with the down payment consider getting some kind of a loan from parents or other members of the family.
Another option is to use a mortgage broker whose primary task is to find you the best deal possible. They will work with the banks as well as non-traditional lenders to get you the best rates and financing terms.
Rivard says another financing option is the Home Buyers Plan (HBP) which allows people to withdraw up to $25,000 from their Registered Retirement Savings Plan tax free toward purchasing their first home and then repay the money over the next 15 years. Repayments do not start until the year after the withdrawal is made.
Before you can withdraw the funds you must have entered into a written agreement to buy or build a qualifying house which you must occupy no later than one year after buying or building the home.
“The best advice I can give is to sit down with an adviser, review your situation and make a decision based on reason and what you are reasonably able to afford without jeopardizing your financial plan and long-term goals,” he says.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.