Dominion Lending Centres Chief Economist, Dr. Sherry Cooper: Canadians have options when it comes to housing
Despite the variation in real estate markets across Canada, homebuyers face the same fundamental question whether they are first-time buyers in Toronto, families purchasing a fixer-upper in Atlantic Canada, or down-sizing boomers in the West, says Dominion Lending Centres chief economist Sherry Cooper: What are you willing to do to achieve your goal. “For the first-time homebuyer, it’s a trade off between living close to your workplace and having to pay more for your home versus living farther away and facing a meaningful commute to get more for your money,” she says. Baby boomers with their retirement nest egg tied up in their singlefamily homes, face very similar circumstances. For boomers, staying in the city usually means downsizing to a condo, which is more expensive per square foot and can take a serious bite out of that nest egg. Moving out of the city often means giving up family, friendship, and services. In between, there’s the move-up market – people with growing families who are looking for their second home. They have equity, so they can afford a larger down payment and typically, they are close to their peak earning years. The challenge they face, particularly in regions where the market is strong, is a shortage of suitable homes. Investors and developers are frequently bidding for the same properties. People thinking of moving up may want to consider another option: Buying a larger condo in the suburbs or in smaller communities. There is a demand for more choice in this market segment, she says, that has led to developers start building two and threebedroom units in the suburbs that include amenities like indoor and outdoor play areas. The lifestyle issues, Cooper says, are best solved by family discussion. First, sit down and talk. Then, talk to a mortgage broker, a real estate agent and possibly an accountant. “For a first-time home-buyer in particular, you really do need to know how much you can afford. It may be less than what you can borrow. You don’t want to go right to the edge because there’s just too much risk,” she says. “You want to have enough of a cushion that you could take care of an emergency, or in the event of one of you losing a job. You have to have some precautionary savings.” For all demographic groups Cooper advises locking into a fixed-rate mortgage. “I would go for a fiveyear fixed if I were buying right now. Because rates are low and the chances are that in the future, they will be higher.” Mortgages are complex, and she cautions against simply taking the best deal a bank has to offer. For example, the first-time buyer may want the option of paying down the principal more quickly. “That’s the whole story of why mortgage brokers make so much sense, because they can shop the loan for you and can find something that is much more customized to what your personal needs are.” For first-time buyers and boomers, renting is also an option that shouldn’t be ignored, she says. Boomers can then get the full amount of equity from their home while firsttime buyers can continue to save for their down payment. Similarly, those in the move-up market may want to consider using the equity in their home to finance a home renovation rather than buying a new residence.