My next door neighbour is an incredibly nice man. His children are all about my age and the two of us often chat about what’s happening in the city. He’s very hip with the kids and gives the best Netflix recommendations. I’ve never met his daughter but she’s my hero because not only does she own her own place in the city but it’s a house and it’s also in The Beach! He taught me the term, ‘pink mortgage.’
He knows all about my being priced out of the Toronto real estate market, the debt problems faced by many Canadians, and about my big plans for home ownership in the city: Plan A). Buy immediately when the bubble bursts causing catastrophic crash as promised by the media. Plan B). Buy immediately when interest rates rise causing catastrophic crash as promised by the media.
But the bubble is not bursting and the rates aren’t rising and the one billion condos in the downtown core are not vacant. The latest real estate numbers for Toronto look a little something like this: The average price of a home in Toronto is up again to almost 1.3 million, an increase of 19%. I’m currently working on a Plan C!
There is a lot to hear and read about the housing markets of Toronto and Vancouver and we all know that Millennials in particular are feeling the heat given their position on the property ladder but I am hearing stories of them finding a way. Of course they are! Nobody needs to fear for Millennials. Millennials have proved themselves to fear nothing, least of all numbers. They do not fear six figure student loan debt. So why would they fear one million dollar fixer uppers in bad school districts? Or 600 square feet condos in public transport and parking dead zones?
If you’re a Millennial and you’re still in the game, the biggest factor in determining if you should rent or buy and when is affordability. Affordability is the only thing that matters. One variable for Millennials is mobility. If you need to move and sell in the next couple of years then renting is the way to go. Also keep in mind the possibility of an expanding family. Can your space accommodate a partner and a couple of kids?
Whilst the answer to renting or buying comes down to affordability it can be difficult to determine what exactly affordability is. Affordability is not determined by what you want and it’s not determined by your real estate agent or your mortgage provider. Affordability is determined by your budget. A simple spread sheet or piece of paper which should include your income and a list of monthly expenses. When creating your own personal budget don’t forget to include what your mortgage payment will be as well as property taxes, home insurance, utilities and any condo fees. It is important to plan for a change in interest rates when calculating your mortgage payment. For example, run your budget based on your expected mortgage payment if interest rates rose to 6%.
I know a lot has been written on the contrary but I believe that Millennials are great at budgeting. However, you may find yourself in a position where you’ve never budgeted for a household. Especially if you’ve been camped out in your parents basement saving for a down payment. Credit Canada can help you make a budget and determine affordability. To those of you out there house hunting I wish you luck and would love to hear your real estate stories, preferably the horror ones!