First-time home buyers are putting off purchasing a principle residence in favour of first buying investment properties
in cheaper markets, says one broker; but one of his peers isn’t convinced this is the best move.
“Most first-time buyers aren’t going to qualify for a $750,000 house so they’re going to quickly learn how to raise down payment money and what a lot of them are doing now is investing in real estate as rentals to get some cash flow,” Guy Lew of the Mortgage Centre told MortgageBrokerNews.ca. “On the exit, they are using that capital toward a principle residence.”
According to Lew, most investors have 20 to 30 thousand dollars to invest in a property, which won’t put enough of a dent in an expensive home.
“They’re trying to build 150,000-200,000 to put toward that house so what they will do is sacrifice home ownership for a year or two to build the capital in the rental market,” he said. “They’ll look at, say, a house for $250,000 in Barrie.”
But this isn’t the most sound home ownership strategy, according to one real estate agent and mortgage broker, who argues that year-over-year housing price increases should be enough to influence buyers to purchase a principle residence as soon as possible.
“I advise my clients to put at least ten per cent down; buyers should have a nest-egg and ten per cent minimum when buying their first home,” Justin James Raju of Dominion Lending Centres
Canada Mortgage Group told MortgageBrokerNews.ca “The average price in the GTA is $475,000 and if you don’t buy today the price may jump in the next few years so buyers should buy within their means in the market they want to live in.”
Both brokers operate within the GTA – and, in Toronto in particular, affordability is quickly deteriorating, according to the Canada Mortgage and Housing Corporation.
“In these markets, owning a single-family home has become quite a stretch, budget-wise, for the ‘average’ homebuyer,” the crown corporation’s latest affordability report says.