The real estate world is a scary place for first-time homebuyers. Rent or buy? City or suburbs? Can we even afford anything in this market?
Irene Chow is a sales representative for RE/MAX, working in Toronto, Mississauga and the west side of the Greater Toronto Area (GTA), specializing in relocation, condos, luxury homes and rentals. She spoke with Yahoo Canada Finance about the misconceptions and truths she’s run across in her own experience with young buyers and renters in the Toronto area.
MYTH: Young people can only afford to rent
Though renting is a young person stereotype for a reason, there are definitely twenty- to thirty-year-olds looking for places to buy. In Chow’s experience, it’s usually happening outside of the city.
“[If] they have that combined income, they are able to get into townhouses or starter houses,” she said.
Either a strong enough total income, or some help from their parents, can give first-time buyers the edge to buy instead of rent. And if they can afford to buy, Chow encourages them to.
”Every month when you pay that rent, you know you’re not seeing a penny of that back,” she said. “But if you’re buying and you can afford a smaller place, in a couple of years you’re getting all the money back […] and sometimes more as homes are increasing in value.”
MYTH: Young people can only afford condos
“I have young first-time homebuyers who are able to get into starter homes,” said Chow, who sells the occasional condo in the city but more often homes outside of it.
A mortgage broker has to look at their client’s financial portfolio first to see what they can afford, but $300,000-350,000 can mean buying in Mississauga instead of renting in the downtown, according to Chow.
She also has clients who can get into “spec” townhouses (short for speculative, meaning the owner builds them with a specific buyer in mind), which can be anywhere from one to three floors and approximately $350,000.
MYTH: Single people can’t afford to buy on their own
There’s a reason couples are the stereotypical homebuyers. Together they will have more income to spare, as well as be more likely to want a more sedate lifestyle than a single person of the same age.
“I do find there are young, single incomes [that are enough], but it’s rare,” said Chow.
Often if a single person is moving from a condo to a house, they are just upgrading their living situation (and parents are sometimes helping with the down payment.)
MYTH: Everyone is leaving the cities for the suburbs
Not so much.
“Young people, especially if they’re single, they prefer downtown Toronto,” said Chow. “They don’t mind paying that rent.”
From what she has seen, a lot of younger adults will fork over the higher downtown rent costs in order to stay in the more active social areas.
“Couples that want to start a family, a life together, are moving to the more suburban areas. They are looking for a little bit more space, because now you have two of them.”
MYTH: The suburban market is getting competitive because the cities are less affordable
“You can feel it,” said Chow.
In the past, her and her coworkers never heard about multiple bids on homes in Mississauga, Oakville or Brampton the way they did for downtown Toronto properties.
But in the last couple years, the demand has skyrocketed and multiple offers are normal in these areas. Buyers can’t afford a semi-detached house in the city, so they have to leave their urban environment to make it happen.
MYTH: You need a $100,000 salary to afford a house in downtown Toronto
Chow knows the finances of her clients, and she’s pretty sure this one’s true.
“You would have to be making pretty much $80,000 to $100,000 to afford [one], plus a minimum 10 to 15 per cent down payment.”
According to the Canadian Mortgage and Housing Corporation, total monthly housing costs including your mortgage, property tax and heating expenses shouldn’t exceed 32 per cent of the household’s gross monthly income. Even if you pass that hurdle, your total debt load (including housing costs, car loans, credit cards and other loans or debts) shouldn’t exceed 40 per cent of the household income.
Chow advises sitting down with the right person to go over your finances before you get attached to the idea of buying or renting anywhere.
“Talk to somebody. Talk to a real estate agent.”