Johnny Tarabay feared he would never be able to afford a home of his own.
But, after years of watching home prices rise out of reach, the 28-year-old Scarborough bachelor recently put an offer on a house in Richmond Hill, thanks to what some are calling the silver lining in the worst recession in decades: historically low interest rates.
Tarabay is one of many first-time buyers being lured into the market. The trend is backed up by a report released yesterday by the Royal Bank, which shows houses in Canada have become much more affordable in the first three months of the year, one of the biggest quarterly improvements on record.
"This has opened the door more widely to new buyers and set the stage for a resale market rally this spring," said RBC senior economist Robert Hogue.
"While it is still too early to wave the all-clear sign - economic uncertainty has yet to dissipate in the region - it appears the Toronto housing market is averting the painful crash scenario," he said.
The biggest reason: low interest rates. Following a dismal drop to a 10-year low during the fall and winter, resale activity has bounced back this year, as buyers, particularly first-time buyers, have flocked to the market, lured by low monthly payments.
In the Toronto market, said RBC, it took on average 45.9 per cent of pre-tax household income to afford a standard bungalow, valued at $417,900, in the first quarter of this year, down from 51.4 per cent in the fourth quarter of 2008.
The lower the measure, the easier it is to afford a home. A standard two-storey Toronto home (valued at $494,600 in the first quarter of the year) had an affordability measure of 54.6, compared to 61.6 in the previous quarter.
That means the costs of home ownership - including mortgage payments, utilities and property taxes - account for 54.6 per cent of a typical household's income.
A standard condo, with an average cost of $278,000, had an affordability measure of 31.1 in the first quarter of this year, compared to 35 in the previous quarter.
Tarabay's opportunity came a little unexpectedly after the sharp economic downturn caused stock markets to plummet and housing prices to stall in autumn.
"Before we hit the recession, I was considering what to do, but prices were really high," said Tarabay, a custom jewellery designer and owner of Toronto-based 3 D Tech Design. "But then the economy hit the wall and it just seemed like a good time."
Living with his parents was certainly comfortable, but Tarabay yearned for his own space.
On Monday, he made an offer on a four-bedroom home near 16th Ave. and Leslie St., listed for $539,000. He was bidding against four others and still doesn't know the outcome.
"I'm on the edge," said Tarabay. "Considering it's a recession, it's been tough finding somewhere."
He figures he has looked at more than 40 homes since the start of the year. A flurry of market activity and a lack of listings, particularly affordable ones, have sparked bidding wars in some neighbourhoods this spring and summer.
Tarabay said his pre-approved five-year mortgage rate of 3.7 per cent means his monthly payments would be around $1,500, which is manageable for him.
He estimates that the same home would have cost more than $400 extra in monthly payments a year earlier, when five-year rates were at 5.7 per cent.
"The way things were going in the market and given the numbers, I felt this was the best time to start moving out," said Tarabay.
One problem for buyers is that since the RBC study was conducted in the first quarter of the year, prices and interest rates for long-term mortgages have crept up in the Toronto market.
Other analysts are already cautioning that the spring and summer rally may not last into the fall, once the pool of first-time buyers is exhausted and interest rates head back up.
"The rise in mortgage rates in June is a reminder that the sizable improvement in affordability attributable to lower rates is likely behind us, and with home prices stabilizing or perhaps beginning to rise in some areas, further improvement depends on greater gains in family income," said Hogue of RBC.
Across Canada, the biggest improvements in affordability were in western provinces, which had seen the sharpest increases in housing prices. In Vancouver, it took 54.6 per cent of pre-tax income to afford a standard two-storey home (valued at $632,900), down from 61.6 per cent. In Calgary, it took 36 per cent of pre-tax income to afford a $390,000 two-storey home, down from 42.6 per cent.