2019 will be another challenging year for first-time buyers

You thought first-time buyers had it tough in 2018 - it’s looking like 2019 may be even harder on singles and couples looking to step onto the homeownership ladder. 

The stress test remains

Late last year, there was some talk about repealing or reducing the mortgage stress test due to higher interest rates and high prices. We also heard from President of Bullpen Research & Consulting Inc., Ben Myers, who said he’d like to see the stress test reduced by 50 basis points. 

While some industry leaders are saying it’s time to revisit the stress test, we haven’t heard of any future changes, which means you’ll have to qualify at 2% higher than your contracted rate whether you put more or less than 20% down on your new home purchase. 

This is a problem for first-time buyers because the condo market is basically the only place they’ll find price points they can afford, and since the average prices for single-family homes range from $600,000 to over $1 million across the Greater Toronto Area, more and more families are also being forced into the condo market. As the demand strengthens for condo units in the GTA and families with larger budgets move into the market, prices will go up and first-time buyers will be stuck renting. 

Rent is going up this year   

According to a joint report by Bullpen and Rentals.ca, average monthly rent will go up by 11% in Toronto this year, while Ottawa will see a 9% increase. As of November 2018, the average rent for a one-bedroom in Toronto was $2,144, and a two-bedroom averaged $2,576. 

How are first-time buyers supposed to save enough for a down payment when all their money is going to rent? For that average one-bedroom to technically be affordable, the prospective first-time buyer household needs to be making approximately $6,400 a month. Plus there are other shelter costs like Internet and hydro to consider. 

That’s around $76,800 a year to afford a one-bedroom in Toronto. It’s not that unrealistic for a couple to be making this - that’s $38,400 a year each (that’s like working full-time, making $18.50 an hour). According to the 2016 Census, the median household income in Toronto CMA was $78,373. 

The Toronto Real Estate Board recently reported the average price of a resale condo unit in the GTA in December 2018 was $554,497. A 20% down payment would be around $110,899. If a first-time buyer saved $1,000 a month (and we think this is a generous amount), it would take nine years to save for a 20% down payment (we realize there are options to put less than 20% down for first-time buyers - just keep in mind that those types of mortgages need to be insured). 

These numbers are scary, but it’s important to keep in mind that these are averages, which means there are many prices that are higher and prices that are lower. There are new condos in and around the GTA priced in the $300,000s and $400,000s, you just have to find them!