4 steps for young Canadians to take toward homeownership

After more than a year of working, worrying and waiting at home, it seems neither the pandemic nor skyrocketing real estate prices have hampered people’s desire to own their own homes.

Indeed, 40% of young Canadians aged 18 to 34 say COVID-19 and continued low interest rates have motivated them to look at purchasing a home if prices drop, and 21% say they already plan to buy once health measures are lifted, according to a CIBC Market Research report released last month.

With the end of the public health crisis in sight as more people get vaccinated against the virus, real estate is the new comfort purchase.

“People are looking at enriching their lives in their homes, whether that is more green space or renovating or looking to upgrade their current home. People are paying a lot of attention to this space that they’re spending a lot of time in,” says Carissa Lucreziano, Vice President of Financial and Investment Advice at CIBC.

Among the 18- to 34-year-olds currently living with family or roommates who were surveyed for CIBC’s “COVID-19 Impact on Home Ownership” report, 32% are saving for a down payment and 39% plan on moving out within the next two years.

However, with homes in the hottest urban markets selling at upwards of $1 million and prices rising across the country, first-time home buyers need a clear plan to make their real estate dreams a reality, she says.

“Owning your first home is a wonderful experience. It’s quite an emotional one as well and there are many elements to think about that lead up to the day you’re holding the keys to your new place,” Ms. Lucreziano says. 

First, it’s never too early to connect with an expert advisor, she says.

“Even if you don’t buy a property for six months or a year, it’s great to enlist the expertise of an advisor or a real estate agent, because if you engage early you’ll be able to take your time, get comfortable with the process, ask lots and lots of questions, and not rush,” she says.

Research advisors and real estate agents online but also ask family and friends for referrals, she suggests. And interview potential candidates.

“When it comes to either an advisor or a real estate agent, make sure that you connect with that individual and you have good up-front conversations before making the decision to start working with them.”

Buyers need to save for a down payment of 5% to 20% of the purchase price. The down payment varies depending on the purchase price of the home. An advisor can help potential home-buyers set up an appropriate savings plan.

“Start saving early,” Ms. Lucreziano says. “We can all be surprised at how much we can trim off on a monthly basis: $50, $100, everything counts towards planning for that future down payment.”

Financial institutions such as CIBC have automatic savings plans to funnel funds into separate down payment accounts. Also, first-time buyers can use the First-Time Home Buyers Tax Credit. Up to $60,000 can be withdrawn from registered retirement savings plans (RRSPs) through the federal Home Buyers Plan. 

A home purchase can be a key element in a person’s long-term financial picture, Ms. Lucreziano emphasizes. That’s why consulting an advisor about how to make homeownership work within the scope of your finances is such a key step in the buying process. 

“It’s critical to understand what you can afford and then to stick to your budget,” she says. “It’s really easy to get excited when you’re shopping for a home but knowing how much you can afford is really important.”

Budgeting for a home purchase goes beyond just a mortgage, Ms. Lucreziano says.

Buyers now need to pass the “stress test,” and prove they can afford their potential mortgage in the event of a period of financial turmoil or a hike in interest rates, so that needs to factor into how much you can put toward a mortgage, she says.

Also, there are closing costs which can be 3% to 4% of the purchase price, as well as the up-front costs of furnishing a new home, buying appliances or appraisal fees. There are also ongoing costs to owning a home.

“You want to include these in a monthly or yearly cash flow budget that encompasses all of the increased costs: for example, property taxes,” she says. “What insurance do you need for your home? What are the hydro and internet fees, cable costs, as well as any repairs or replacements? Are there condo fees?”

“Although it’s not a formal mortgage application, you will have confidence and understand how much purchasing power you have,” Ms. Lucreziano says. 

It’s also important to work through with an expert what kind of mortgage is right for you, she says, whether it’s a fixed- or variable-rate mortgage.

A red-hot real estate market doesn’t mean it’s a market out of reach for younger or first-time buyers, Ms. Lucreziano says. It does mean buyers have to be realistic about the decisions they will have to make.

“What are your must-haves, in terms of property, and what are your nice-to-haves? Is this your forever-home? What are your short- and long-term goals? Is it about work? Is it more convenient from a commute perspective? What is important to you in terms of a neighbourhood? Leisure activity? Schools? It really comes down to the unique needs of the individual.”

Home ownership is still a great way to build wealth for long-term financial goals, she adds. 

“It’s the biggest purchase that you’ll probably ever make and it’s a part of an overall plan,” Ms. Lucreziano says.