This article is part of Global News’s Home School series, designed to provide Canadians with essential information about the housing market that they may not have learned in school. For first-time homebuyers, it can be overwhelming to search for available properties online. Listings vary greatly from one neighborhood to another, and without answers to important questions, it’s easy to get lost in the world of real estate. How many bedrooms do we need? Should we choose a condo or a detached house? Should we prioritize living close to friends, work, or family? And most importantly, can we afford any of this?
While everyone’s first step onto the property ladder looks different, a starter home is usually the starting point for buyers to enter the housing market. It provides some room for growth before eventually moving on to a larger home when the time is right and needs have changed.
When helping someone break into the housing market, real estate agent Nick Kyte believes it’s crucial to manage expectations. Many Canadians have unrealistic ideas about what they can afford for their first property, partly influenced by childhood homes and real estate TV shows like HGTV. To avoid disappointment, Kyte advises first-time buyers to obtain a mortgage pre-approval from a broker or lender to determine their maximum budget. This allows them to see recently sold properties within their budget and assess whether their initial thoughts were realistic or not.
Affordability in Canada’s housing market, even for starter homes, is a challenge for many. A recent report by real estate outlet Point2 found that 36 of Canada’s 50 largest cities, particularly in Ontario, had bleak affordability prospects for renters. However, there are still 14 cities where renters have a better chance of breaking into the market. In some cases, couples and extended families pool their resources to make homeownership possible. Additionally, higher interest rates and slight price depreciation due to the pandemic can make it a good time to buy a starter home, even in traditionally expensive markets.
Although condos are a popular choice for first-time buyers, Kyte warns against narrowing the search solely to condos due to budget constraints. It’s important to consider other types of properties and potentially explore areas outside the city center. Kyte shares an example of clients who initially wanted a downtown apartment but ended up finding a more suitable townhouse on the outskirts of Ottawa. By adjusting their perspective, they found a home that accommodated their needs and allowed for a longer stay with room to grow their family.
Typically, a starter home serves buyers for three to five years before they move on to their next property. However, circumstances can change, leading to shorter or longer stays. Finding a starter home with enough space to accommodate growing families helps build equity and allows for a better property upgrade in the future.
It’s crucial to balance affordability with risks. Downturns in the housing market can affect new builds, such as condo high-rises, causing delays and financing issues. Buyers who put money down on a new build may face difficulties qualifying for the same mortgage amount as before due to higher interest rates. Additionally, the market correction can affect the property’s appraised value, potentially leaving buyers short on funds to close the deal. While there may be affordability in pre-built units, it comes with higher risks compared to finding an existing unit on the resale market for a first home.
In addition to considering condos, new builds, or properties on the outskirts, there are alternative ways to find an affordable starter home.
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