Tips for first-time homebuyers as affordability in Canada continues to deteriorate

Ross Davidson and his wife spent three years buying their first home.

The Ottawa couple became concerned about the pandemic, but have been repeatedly sidelined due to rapidly rising home prices, rising interest rates and stricter mortgage rules.

“It feels like an ever-changing game,” Davidson said. “Things always jump out of line.”

With kids last spring, the couple eventually scaled down their wish list and bid on a townhouse in the suburbs.

“Ironically, when we first started looking, we saw the units, but we didn’t want to share a wall,” he said. “We ended up buying one for double the price after three years.”

First-time homebuyers in Canada are facing the toughest housing market in generations.

Soaring home prices and massive interest rate spikes have pushed affordability to the worst levels in decades, causing some first-home buyers to be shut out of the market entirely, according to a report from TD Economics.

Traditionally, first-time buyers accounted for more than half of all purchases. But that share has been declining since the pandemic began, reaching a low of 46.8% in June 2021, as real estate investors and multiple property owners made up the difference, TD said.

While house prices are starting to fall slightly, overall affordability has not improved.

“Lower prices haven’t offset the impact of higher interest rates,” said RBC economist Robert Hogg. “Our affordability measures are still deteriorating.”

Property experts say the learning curve for many first-home buyers is steeper than usual. However, they say there are some tips and tricks that can help.

“The dream of owning a home isn’t going away,” Hogg said. “I think it can still be achieved by being flexible about when it’s implemented and what form it will take.”

Despina Zanganas, a Toronto realtor with PSR Brokerage, says all potential first-time buyers should be the first call to a realtor.

“People often wait too long to find a real estate agent,” she said. “I recommend contacting a real estate agent a year before you plan to buy.”

Buyers often rely on word of mouth to find real estate agents, but Zanganas said it’s important to shop around.

“It’s important to find people who connect with you and are a good fit for you,” she said.

The next step, Zanganas said, is figuring out what you can afford.

“I have some first-time buyers who say they want to buy in (a wealthy Toronto neighborhood) Rosedale, and they have a $900,000 budget,” she said. “A mortgage agent will help you set expectations correctly.”

“They will also flag any additional transaction fees,” she added. “Usually first-home buyers don’t think about the extras.”

At the same time, the federal government has launched several programs aimed at helping first-time homebuyers.

The recently announced Tax-Free First Home Savings Account enables new buyers to save $40,000 on a tax-free basis towards purchasing their first home in Canada.

“It’s an efficient way to put down a down payment on your first home,” said James Laird, co-CEO of and president of CanWise Mortgage.

He said it was an improvement over the Home Buyers Program, which allows Canadians to withdraw up to $35,000 from a registered retirement savings plan for a down payment that must be repaid within 15 years.

Still, the new registration scheme is slated to start next year, so Laird said it would be several years before it could help buyers.

Another new scheme, called the First Home Buyer Incentive, offers up to 10 per cent off the purchase of a new home through a shared equity mortgage with the government.

But Laird warned new buyers to steer clear of the scheme, noting that co-owning a home with the government was a “bizarre” situation that could backfire.

“We think it’s very harmful,” he said. “The government becomes co-owners…they don’t pay maintenance or property taxes, but they share in the potential appreciation. We found it flawed from many angles.”

Mortgage insurance from the Canada Mortgage and Housing Corporation allows buyers to make a smaller down payment in exchange for up to 4%.

“The fees are clear and predetermined, and there is no confusion about who owns what,” Laird said.

However, mortgage insurance is only available for properties purchased for less than $1,000,000. Cities like Toronto and Vancouver should have higher caps, Laird said.

“The government has no interest in helping the rich buy multi-million dollar homes,” Laird said. “But if you buy a $1.2 million semi-trailer in Toronto with no parking, you’re not a country club rich man. You’re trying to find a home for your family.”

Meanwhile, first-home buyers should feel “absolutely disgusting” even if they can eventually own a home, he said.

“The normal first-home buying experience is an emotional roller coaster.”

Real estate agent Zanganas agrees, noting that first-time buyers are “really afraid to throw away their shirts and make the wrong decision.”

“I always warn them that once they sign on the dotted line, they fear it’s the worst mistake of their life. Everyone goes through this.”

Ross Davidson and his wife Kathleen Macdonald are relieved after welcoming a baby girl and settling in their new townhouse.

“Part of the magic of what we had to do rigorous search was that we really knew all the little communities in Ottawa very well,” MacDonald said.

“We opened up to things we never thought about before, and we got to where we were really happy.”

Brett Bundale, Canadian Press

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