Fast track to homeownership

The Canadian Real Estate Association’s (CREA) latest sales forecast was welcome news for many Canadian homeowners, especially those looking to list their property.

Transactions are expected to rise 0.3% in 2012 while prices should remain at current levels across much of the country, it said. The forecast was a reversal from CREA’s previous one that suggested sales would fall.

But for young professionals hoping to enter the market for the first time, the news is provides little to no comfort whatsoever.

Student loans, entry level jobs, rental costs and daily travel expenses mean today’s average $360,000 home won’t be coming any time soon for many of us—even with interest rates at record lows.

Of course homeownership is not the be-all and end-all or even a necessary hallmark of financial success. Maintenance and reoccurring costs mean it’s not for everyone. And with growing speculation of a housing bubble in Canada, some question whether property values will continue to grow at current rates, if at all, over the medium term.  (The CMHC has a great step-by-step guide to help you determine if homeownership is for you.)

I’m not planning to take the plunge anytime soon but as a 28 year-old single person, with a career job and some money saved up I’d like to think I could buy the most modest of starter homes, if I wanted to.

I decided to check out ING Direct’s mortgage borrowing calculator to see how much home someone in my position could reasonably expect in today’s market.

Turns out someone like me would qualify for a house with a maximum price tag of $266,000. That’s with roughly 20% down and a 25 amortization period. Seems like a fair chunk of change—at first.

A quick search on CREA’s MLS system turned up only one house listed under $275,000 and a handful of tiny condos and townhouses in my hometown of Mississauga, Ont.—an economically diverse suburb that spans nearly 300 square kilometers.

Move eastward into Toronto and the slim pickings all but disappear.

It’s no surprise then that more than half of Canadians aged 20-29 live with their parents. Of my friends that have moved back into their childhood homes to save money, most still feel homeownership is out of reach.

If you are hell-bent on homeownership sooner rather than later, you’ve got to make that purchase a number one priority, said Lise Andreana, author of “No More Mac ‘N Cheese!—The Real-World Guide to Managing Your Money for 20-Somethings.”

If you do, there’s lots of opportunity to get properly lined up.

“You got to take it one step at a time,” she said.

Andreana recommends saving in an RRSP and taking advantage of your employer’s RSP matching program, if they offer one. Contributing can be like getting a 3% to 4% pay raise and lowers your taxable income.

“Do whatever it takes to get all the money you can out of your employer,” she said.

When you are ready to buy, you can withdraw up to $25,000 interest-free as long as you pay it back within 15 years.

“I would do it because at 28 when you don’t have a home, you don’t really care about when you’re 75. You care about today and getting established,” Andreana said.

TFSAs are another great way to grow your down payment tax-free. “Steal” money from your daily budget and put it aside, Andreana said. You’ll be surprised how quickly your caramel macchiatos add up.

Still not satisfied you’ll have enough to scrape up the minimum 5% down on a home? Talk to your parents, Andreana said.

Lots of folks have already factored in the cost of a wedding and they might be willing to put the money toward your first home instead.

Even if you are planning a wedding, it’s a lot smarter to spend that money on property than on a party.

“At the end of the day, the wedding doesn’t have to be super expensive…take the cash,” she said.

Ditto for the big, expensive engagement ring.

“The thing that is going to grow in value is your real estate, over time.”