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

Home prices slowly beginning to improve, but overall affordability still down

It took three years for Ross Davison and his wife to purchase their first home.

The Ottawa couple began looking before the pandemic but were repeatedly sidelined by rapidly rising house prices, climbing interest rates and tougher mortgage rules.

“It felt like a constantly changing game,” Davison said. “Things were always jumping just out of reach.”

With a baby on the way last spring, the couple ended up scaling back their wish list and put a bid in on a suburban townhouse.

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

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

Skyrocketing home prices and massive interest rate spikes have driven affordability to its worst level in decades, according to a TD Economics report, leaving some first-time buyers shut out of the market altogether.

First-time homebuyers have traditionally accounted for more than half of all purchases. But that share has been declining since the pandemic began, reaching a low of 46.8 per cent in June 2021 as real estate investors and multiple-property owners picked up the difference, TD said.

Although house prices are beginning to edge down, overall affordability hasn’t improved.

“The drop in prices has not offset the effect of higher interest rates,” said RBC economist Robert Hogue. “Our affordability measure is still deteriorating.”

Real estate experts say there’s a steeper-than-usual learning curve ahead for many first-time homebuyers. Still, they say there are tips and tricks that can help.

“The home ownership dream is not dead,” Hogue said. “I think it can still be achieved by showing flexibility on when to achieve it and what form it’s going to take.”

The first call all prospective first buyers should make is to a real estate agent, said Despina Zanganas, a Toronto Realtor with PSR Brokerage.

“People often wait too long to try and find a Realtor,” she said. “I suggest reaching out to Realtors a year before you plan to buy.”

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

“It’s important to find someone you connect with and is right for you,” she said.

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

“I’ve had first-time homebuyers that say they want to buy a house in (affluent Toronto neighbourhood) Rosedale and they have a $900,000 budget,” she said. “A mortgage agent will help set your expectations properly.”

“They’ll also flag all the additional closing costs,” she added. “Often first-time buyers don’t think about the extras.”

Meanwhile, the federal government has launched several programs aimed at helping first-time buyers.

The recently announced Tax-Free First Home Savings Account gives new buyers the ability to save $40,000 on a tax-free basis towards the purchase of a first home in Canada.

“It’s a powerful way to come up with a down payment for a first home,” said James Laird, co-CEO of and president of CanWise mortgage lender.

It’s an improvement from the Home Buyers’ Plan, which allows Canadians to withdraw up to $35,000 from a Registered Retirement Savings Plan to come up with money for a down payment but must be repaid within 15 years, he said.

Still, the new registered plan is slated to startnext year, so Laird said it will be a few years before it helps buyers.

Another new program called the First-Time Homebuyer Incentive offers up to 10 per cent towards a new home purchase through a shared-equity mortgage with the government.

But Laird warns new buyers to steer clear of the program, noting that co-owning a home with the government is an “odd” scenario that could backfire.

“We think it’s quite detrimental,” he said. “The government becomes a co-owner … they don’t pay the maintenance costs or property taxes, but they share in the potential appreciation. We find it flawed from many angles.”

Mortgage loan insurance from the Canada Mortgage and Housing Corporation allows buyers to pay a smaller down payment in exchange for a fee of up to four per cent.

“The fee is clear and upfront and there’s no muddying of who owns what,” Laird said.

However, mortgage loan insurance is available only for properties with a purchase price below $1,000,000. Laird said the maximum should be higher in cities like Toronto and Vancouver.

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

Meanwhile, even once homeownership is finally in reach, first-time buyers should expect to feel “absolutely sick to their stomach,” he said.

“The normal first-time homebuying experience is an emotional roller coaster.”

Real estate agent Zanganas agrees, noting that first-time homebuyers are “really afraid of losing their shirts and making the wrong decision.”

“I always warn them that once they sign on the dotted line, they’re going to worry it was the worst mistake of their life. Everybody goes through that.”

After welcoming a baby girl and settling into their new townhouse, Ross Davison and his wife, Katherine MacDonald, are breathing a sigh of relief.

“Part of the magic of having to be rigorous in our search is that we really got to know all the little neighbourhoods in Ottawa really well,” MacDonald said.

“We opened ourselves up to things we never would have considered before and we landed somewhere we are really happy.”

Brett Bundale, The Canadian Press

READ ALSO: Over half of Canadians can’t keep up with the cost of living: poll

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