High debt & rising house prices robbing Canadians of home ownership

Official blog of Refresh Financial

Poor Credit, High Debt & Rising Housing Costs Robbing Many of Homeownership


There was a post on Reddit recently where a user had proposed a new millennial version of the popular board game, Monopoly. Instead of going around the board and purchasing property, you would just go around and around paying rent. It was a chuckle-worthy idea, but the truth in it isn’t so funny: many people are stuck on that never ending merry go round for real. They're not buying homes. What’s worse, at the same rate home ownership for people 30 and under is dropping, student debt is rising. Millennials are headed toward their forties as renters with loads of debt.

There are plenty of reasons for this trend.

Bad Credit

As we’ve discussed before, millennials tend not to have great credit. In fact, only 2% of them have excellent credit. Obtaining financing the size of your average mortgage is going to be near impossible for people without great credit. As the government tightens the rules on mortgages and lending more and more, it will only become more difficult for millennials to purchase a home.

Lack of affordable housing in many areas is a huge factor as well. In Vancouver, the average cost of a home is $1.5 million. In Toronto, it’s around $1.2 million. This is far beyond what the average millennial would be approved for. Housing in the cities where Canada’s jobs are, are simply out of reach.

Low Wages

Wages have also seemed to flatline while the cost of living soars, especially in Canada. What millennials are getting paid does not reflect the realities of life in 2016. Many are living paycheck to paycheck. In fact, a recent study suggests many Canadians are just $200 away from not being able to make ends meet every month.

Student Debt

The biggest stumbling block between millennials and homeownership, though, seems to be student debt. Paying off student loans for several years of university can be a massive monthly payment - so large that even if the individual found an affordable home and had great credit, they still wouldn’t be able to afford to save for a down payment or pay a mortgage payment on top of what they pay to their loans each month. More and more millennials are not buying homes because their student loan payments are strapping them for cash.

A lot of the changes that need to happen to reverse this trend feel like idealist pipe dreams, though - free education, more affordable housing. In 2016, these almost feel laughable. The federal government here in Canada has done much recently in hopes of slowing the real estate market and maybe seeing some housing prices drop, but in reality, their rules are just making it harder for middle class Canadians to own homes. The only people who are getting approval for homes in markets like Vancouver and Toronto these days, are wealthy Canadians and foreign investors.

Pipe dreams or not, though, cheaper education, more affordable housing, and higher wages are what needs to happen before the younger generation can afford to be homeowners at the same rate our parents were.

However, on the flip side, many millennials who have managed to get a foot on the housing ladder are feeling regret! Why?

Angus Reid recently conducted a survey for CIBC, and in it, they reached out to millennial homeowners to find out what their attitudes were towards their home purchase and the answer might be surprising to you. Overwhelmingly, millennial homeowners reported some form of regret when it came to their home purchase, citing the high costs associated with a mortgage in Canada. 81% of the homeowners that responded expressed the intention to sell the property they’d purchased to get out from under the heavy burden.

Many of the millennials who answered the survey reported that they believed renting was the better option. These new homeowners are increasingly concerned that interest rates will continue to rise and price them out of being able to afford their own mortgage payments.

While it’s easy to blame the economic climate in Canada for this trend, the truth is, there is a way to ensure you’re not getting yourself into something you’ll quickly regret when purchasing a home in Canada.

The way to do that is to budget properly. The new mortgage stress test that ensure homebuyers can qualify at the posted Bank of Canada rate will keep you out of trouble when it comes to worrying about rising interest rates, but the rest of your budgeting is entirely up to you.

When budgeting for a new home, you have to be reasonable, and estimate high. Assume there will be immediate repairs and remodeling that will need to be done. Take into account the fact that property taxes change as they are raised from time to time. If you're living somewhere with strata fees, expect that they will rise every year. Also, make sure you leave yourself some wiggle room. You want to be able to afford your home payments while still saving. You want to be able to afford your mortgage while still living your life. Purchasing a home that presses right up against your budget ceiling is going to make life really tight and uncomfortable.

If this is your first home you’ve set out to buy, remember that very few people get the chance to buy a first home that was perfect. Lower your expectations and your requirements and consider houses you may not be totally in love with. There’s a lot of room for home appreciation when you purchase a fixer-upper and work some magic. Especially if you buy the most run down house in the best neighbourhood - fixing it up is going to make that value soar.

The housing bubble in Canada seems to be made of titanium, with no bursting in near sight, but that doesn’t mean you can’t make a smart home purchase that you’ll never regret. Be open minded, plan well, and leave yourself some wiggle room and you could be looking at an investment that keeps your money growing.

So is the idea of the starter home now outdated?

We've all heard real estate agents and mortgage brokers talk about starter homes. It's the idea that the first home you buy could be a tiny little bungalow, good enough for you and your significant other. Down the line, when the plan begins to include little ones, you would sell your starter home and upsize to something that suits a family a little better. It seems like sound advice, right? If you're single and on the market to purchase a home, why would you buy a family-sized home now when there are so many condos, apartments and townhouses on the market in Canada? Why spend more and make your life more expensive if you don't have to?

When It Used To Work

In the days of our parents, this was a pretty sound plan. It's a step-by-step guide that makes sense and has you living in a home that suits your lifestyle during each of those steps. Our parents could afford to buy a little apartment for themselves and in a few years, with babies on the way, they could sell it and move into a larger home more suited to kids and a family. Maybe your parents even upsized with you in tow, hoping to accommodate more sisters and brothers in the future.

Because this plan worked for our parents, they often offer this method as advice to us. But now, it may not be the best advice. Here's why:

1. The Real Estate Market

- Getting yourself into a home in any of Canada's major cities is a massive investment. You'll need to save for a long time for the down payment and your mortgage is going to be enormous compared to what your parents had to pay. The sheer cost of real estate and the amount an average Canadian has to shell out each month to pay their mortgage are huge stumbling blocks in the way of getting into a new home.

2. Fees

- Fees associated with selling real estate in Canada have shot up dramatically since our parents were buying and selling houses. If you haven't lived in your first home for very long - let's say 3 or 4 years - the cost of selling and buying a new home could be more than what your original property gained in appreciation. This will make purchasing a larger property very difficult.

3. Upgrading Houses Can Be Unnecessary

- Most detached houses on the market in Canada are large enough to raise an average sized family. If you're looking to purchase a detached home as your first homeowner's experience, chances are you're going to find yourself in a home that could house a family quite nicely, making a move to a larger home entirely unnecessary.

For current homebuyers, the best choice is to buy a home that you can see yourself living in for the long term. If you find yourself with the ability to upgrade your home sometime in the future, then do it if that's what's best for you and your family, but don't plan for that. Instead, make your first home purchase something that will easily accommodate a growing family.

6 Ways You Can Enter The Canadian Housing Market

First time home buyers are forced to find new and creative ways to enter the housing market.

Looking for a way to buy a house in Canada? Consider some of these options:

1. Family Assistance

Millennials who are fortunate enough to have family who are able to offer help for a down payment will have an easier time finding their home. According to the Wall Street Journal, many parents of millennials are refinancing their homes to get their children into the market.

Related article: How much will your current Canadian credit score affect your ability to afford a mortgage? Use our credit score mortgage affordability calculator to find out how.

2. Don’t Overlook the Fixer Upper

When the price is far lower than the neighbourhood average, it’s most likely going to be sold “as is”. This means after you buy the home, there is a lot of work that needs to be done. If you are handy or have family and friends who are, this could be a great opportunity to get into a great neighbourhood at a lower price. It’s important to get a good understanding of what the building materials will cost and how much time is going to be invested when going with this method.

3. Rent Out The Basement

Paying off your home each month can be a little easier if your home is also generating extra funds for you. If you’re home has the ability to fit a kitchen, laundry, and a bed comfortably, then this option is right for you. Obviously, you run the risk of having noisy neighbours, but at least you will be making your monthly payments with ease.

Read this CBC article to see how this 31-year-old paid off his mortgage by renting the upstairs of his house.

4. Find A Distressed Property Sale

If you conduct your house search long and hard enough, you’re bound to come across a few gems. If you’re able to take advantage of a situation where a homeowner is forced to sell, you may be able to get a great house for an amazing discount.

5. Buy Outside The Big City

Depending on your wants and needs, the bigger house you desire is more affordable out of the major city. What can buy you a 600 square foot box in the sky in the city, could score your a 2 storey steal in the next town over. Check out these 5 spots in Canada where you can buy a nice home for less than 300k.

When buying outside of the city you work in, you have to make sure the money you’re saving isn’t going to cost you in the long run. For example, property taxes in the city of Toronto are typically cheaper than Mississauga or Ajax. If you are commuting in and out of Toronto’s downtown core each month your transit costs are going to nearly quadruple as well.

6. Rent-to-Own

When you rent-to-own, you typically pay a small down payment and a slightly higher-than-average monthly rent. After a couple of years, the forced savings from the higher rent and can be used towards the purchase down payment of the unit you’re living in. In this scenario, the landlord makes money and you’re able to own the walls you live in – A win-win situation for everyone.

Should You Still Be Playing The Waiting Game?

Sure, you don’t want to pay rent for the rest of your life, but you don’t necessarily need to leap into a 25 or 30-year mortgage right away. If you still need to improve your credit score and save for a bigger down payment, you can put yourself in a better situation to get a better mortgage and rate. If you need to rent or live at home for another year, that’s okay. The more time you give yourself to read up on the market and look for your ideal home, the more likely you are going to stumble upon a perfect spot right in your price range.

Related Article: There are many advantages to entering the housing market. If you’re not ready, however, you could be making a mistake. Read our article “7 Reasons to Put Off Buying Your First Home” before you make your move.


If poor credit means home ownership is out of your reach right now, start making plans to improve your credit now! The sooner you start building credit, the sooner you will qualify for lower interest credit products like a mortgage! Refresh Financial has a credit building program that can get you into a mortgage sooner than you thought!

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