A Rare Window for First-Time Buyers

The post-pandemic downturn in the Ontario real estate market has seriously affected a lot of people's lives, but every downturn comes with both drawbacks and opportunities. I want to talk about who stands to benefit from the situation as it stands today. The downturn is clearly winding down: mortgages are already available at 4% annually, and rates keep falling. Over the next year, the Ontario real estate market is going to change significantly. And right now, in what will be a very short window, a unique opportunity has opened up for anyone without their own home to finally get their first property.

First-time buyers are typically people buying more affordable property, usually smaller condos. For many, especially young couples, downtown has always been the priority, where life is buzzing around the clock. But just a few years ago, good condos in downtown Toronto were priced roughly 20% higher than in outlying areas. Today, thanks to the large number of completed projects downtown, prices there are actually lower than in more distant neighbourhoods. This is a temporary situation, though, since only a handful of new projects have come to market downtown since the pandemic, and everything currently being completed today consists of projects that were sold before the pandemic. There was a real wave of them in 2017-2020, which is why downtown currently has so much inventory in newly built complexes. But within 2-3 years, once new downtown completions become quite rare, we'll be right back to a situation where prices there run 20-25% higher than in outlying areas. Right now, though, you can buy a condo downtown fairly cheaply. Before the pandemic, if you went on Realtor.ca and set your search price to under $500,000, you'd have found only a handful of listings, and even those would have been in older buildings. Today, there are several hundred listings in that range. You can find 1-bedroom-plus-den units for under $500,000 today, and one-bedroom units aren't just available up to $450,000, there are also plenty priced under $400,000.

Let's break down what buying a first home priced at $450,000 actually looks like in numbers for a first-time buyer.

To buy this unit, you'd need a $22,500 deposit, which you could pull from your RRSP if you have one, or, with good credit, get through a line of credit at your bank. Beyond that, you'd need to pay your lawyer roughly $1,800 to close the deal, plus land transfer tax. Add all of that up, and factoring in every rebate the government offers first-time buyers, you'd need just $27,000 total to buy a unit like this.

One good development from recent changes to lending rules is that insured mortgages, where the down payment is just 5% of the purchase price, can now come with a thirty-year amortization. That means qualifying is easier than before, and monthly payments are lower.

Buying a $450,000 unit with a five percent down payment, and factoring in the mortgage insurance premium the bank rolls directly into your loan amount, your debt to the bank after closing would come to $443,000, with a monthly payment on that loan of $2,110, of which roughly $700 a month goes toward paying down the principal. On top of that, as the owner, you'd also have additional monthly costs: condo fees of $370 and property tax of $230.

All told, factoring in the principal you're paying down each month, the unit would cost you $2,010 a month. If you were renting a comparable unit instead, you'd be paying around $2,400 in rent. So even today, at a 4% lending rate, you're already saving roughly $400 a month.

We expect lending rates to fall to 3% as early as next year, and if you take out a variable-rate mortgage today, within a year this same unit will cost you another $400 less, meaning it'll end up $800 a month cheaper than renting the same unit, even if rent itself doesn't go up at all.

And here's the most important part: affordable units are always the most sought-after segment of the market as it comes out of a downturn. They're already starting to get snapped up, and by spring of next year, there'll be very few of these listings left on the market, and prices will naturally start climbing. Within 2-3 years, units you can buy today for $450,000-$500,000 will inevitably be worth a great deal more, and what costs $450,000-$500,000 today will be priced above $600,000. So right now is a genuinely unique opportunity to get your first home, one that can later become your springboard toward a more spacious condo, a townhouse, or a house. And parents have an opportunity here too, to buy a first home for their kids.

Beyond what's currently listed on MLS, our own database also includes units in this price range that aren't on MLS at all. These are contract resales, units that some investors, who bought them 4-5 years ago at the pre-construction stage, are now reselling without profit due to financial difficulties of their own. So there's no shortage of options right now. If you're interested in a purchase like this, get in touch with us, and we'll do everything we can to help you buy your first property. At our office in Richmond Hill, you'll get full service: our real estate agents will find a unit that fits your budget, and our mortgage brokers will help arrange your financing.