Estimated reading time: 9 minutes
Traditional life milestones lead many Canadians into desperately seeking home ownership debt.
With stretched house prices and a weak affordability rate, maybe buying a home now is not the best option.
According to Stats Canada, in July 2023, Canadians owe $1.85 for every dollar of disposable income.
With the decline in household disposable income, it’s no wonder Canadians aren’t sure which way to go.
Life Progression Towards Home Ownership
From a young age, our parents tell us that getting a good education is essential.
You must work hard to earn a good salary, get married, have children, and buy a house to build lasting memories.
Many of you today remember that being said to you at some point.
It may not have been your parents, but we have to understand that it’s a timeline almost engrained in our minds.
Debt is not something to take lightly, as money should be used as a tool, not a means to fit into standardized ideations.
For example, Molly is getting married and is planning on buying a house and having a baby as soon as possible.
Molly is doing so well after graduating from University as a registered nurse and falling in love with Dr. Paul.
They will be one happy family once the baby arrives and move into their new home.
Unfortunately, life is not a fairytale, nor should we treat it as one unless we have the cash to back it up.
Going into debt to create a glass slipper and coach riding off into the sunset is old-school thinking.
Homeownership is a thing of the past as it’s out of reach for many Canadians who have given up or moved on to other housing ventures.
Home Ownership Can Be Stressful
An email from a CBB reader made me consider writing about how desperate some people are to jump into home ownership debt.
Years ago, I wrote a post about being house-poor and why it’s not worth the false prestige that some people think follows.
A money mindset shift happens from generation to generation based on what has been learned inside and outside the home.
Although Canadians have heard about the perils of not getting in over their heads financially, many still do.
It’s a matter of understanding the mathematics and long-term effects of mortgage and consumer debt.
With high inflation and rising interest rates, home ownership debt is not a wise investment.
Not Desperate To Own A House
Dear Mr. CBB,
Why are some people so desperate to be homeowners that they’d pay way over the asking price to become one and omit an inspection? I can’t wrap my head around that.
In my lifetime, I’ve owned a townhouse and a larger house with a rental basement suite, neither of which I paid over asking nor had inspections.
Being a homeowner is stressful, so I’ve been happily renting for nearly ten years since I sold the last house.
I’m not ruling out home ownership in the future, but I’m not desperate enough to own a house that I’d offer $150,000 over asking.
Maybe not even $5,000 over!
If money is no object and people are desperate to own a house or that specific house, they would pay over asking.
I would not, but perhaps that’s a post you could write, as you have some insight into people who’ve done this.
Prestige Of Home Ownership In Canada
Do you own a home or rent? I can’t tell you how often I’ve been asked that question since arriving in Canada.
Self-made millionaire Grant Cardone says, ‘Don’t buy a home—unless you can afford to waste money.
- Costs eat up profits – Home maintenance costs of a minimum of 1% yearly after property taxes, interest rates, and real estate fees.
- No Cash Flow Market- Where the homeowner depends on the market.
Cardone says only buy when you find a trophy home selling under market value and has a profitable exit.
For example, a home on our street with a market value of $845,000 just sold for $790,000 under the asking price because the sellers needed out fast.
They purchased a home out of province for a career move and took the first offer they got after a weekend of an open house viewing.
It’s a case of our loss, your gain.
Societal Demands For Owning A Home
Everyone wants to know if you’ve ventured into the land of home ownership as if it’s something only well-off people do.
That statement can be silly or valid, depending on where you came from before the home ownership venture.
Understanding finance is all about perspective and how much value is placed on needs vs. wants.
Owning a home doesn’t make you look cool or that you’ve made it in life.
On one hand, it tells me that you probably have a lot of debt and stress or little to no financial burden.
Honestly, though, who cares?
By definition of our financial understanding, we had lots of mortgage debt, and every time we turned around, something needed attention in the house.
Home maintenance costs alone are enough to bankrupt someone if they aren’t prepared for the unexpected.
The first big purchase we saved for was a new roof that cost us $5600, a massive expense without savings.
At times, we’d wonder if we were better off renting longer and buying a house that didn’t need updating.
It was a battle of the home ownership debt wars, although it worked out in our favour as we didn’t engage in the wild bidding wars of 2021-2022.
Buying A Home Using Government Programs
What about first-time buyers using their RRSPs with the Home Buyers Plan when they must start paying it back?
Added financial stress to an already depressed system is a recipe for disaster.
The Home Buyers’ Plan (HBP) program allows you to withdraw from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or a related person with a disability.Canada.ca
Tax-Free First Home Savings Account
In Budget 2022, the government proposed the introduction of the Tax-Free First Home Savings Account (FHSA).
This is a fantastic way to save for a down payment on a home to get into the Canadian market. It can also work with the HBP, depending on eligibility.
This new registered plan allows prospective first-time home buyers to save $40,000 on a tax-free basis.
Like a Registered Retirement Savings Plan (RRSP), contributions would be tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable, like a Tax-Free Savings Account (TFSA). – Canada.ca
Also, the money is not required to be repaid as it is with the Home Buyers Plan.
Home Ownership Debt vs. Rental Debt
There would have been no chance we’d move from our one-bedroom basement rental to pay astronomical pricing to purchase a home in today’s market.
But why are so many people doing so?
I guess the availability of rentals and paying high rent doesn’t make sense since it could pay for a mortgage.
Fair enough, but that’s not where expenses end when owning a home.
Rental prices have increased so much that some people have to choose between eating or a roof over their heads.
Strange enough, visitors to a food bank or shopping thrifty aren’t just renters; they are homeowners who struggle to make ends meet.
Broken System and Fine Line Living
There’s a break in the system, not just an imbalance that needs to be fixed.
Low-interest rates drove the housing market, and Canadians took on home ownership debt by the horns.
The Bank of Canada is pulling in the reigns, and many homeowners are in for a rough ride.
That means that landlords have to take into consideration rent increases to pay their bills.
It’s the circle of debt which affects everyone.
The Ontario rent increase guideline for 2024 is 2.5%, and the maximum a landlord can increase most tenants’ rent during a year without the approval of the Landlord and Tenant Board.
Pleading With The Bank Of Canada
B.C.’s premier has sent a letter to the Governor of the Bank of Canada urging him to reconsider a possible interest rate hike in September, as he says “people in B.C. are hurting.”
The last rate hike on July 12 brought the BoC’s key interest rate up by a quarter of a percentage point, to five per cent — the highest it’s been in more than two decades.
“The danger of further unnecessary rate increases is not just to homeowners with mortgages as they renew or lock in at higher rates.
Renters, young people, seniors, families, and small business owners burdened with car loan payments of lines of credit who were just starting to find their feet after COVID are being pushed to the brink.”Vancouver City News
Buy Now Pay Later Home Ownership Debt
As interest rates increase, Canadians who can’t afford their mortgage are in a pickle.
The bank says buyers can afford a mortgage amount today, with little to no consideration about future affordability.
Who is responsible for doing the mortgage math before buying a house?
Don’t bet on the bank, as they are in the business of making money.
Our neighbour, for example, a couple in their 30’s, bought their first home for $800,000 on a variable-interest mortgage.
They only purchased the home because the variable rate fit their financial picture.
Visions of owning a home can often cloud the future, where people face problems.
The owner told me casually that they can’t renovate this year because their extra cash will pay the mortgage.
Oh, and his wife is pregnant, which means they can’t afford more expenses.
I have to give them credit for having emergency savings as it’s buying them time to develop a longer-term solution.
According to a recent study by Ipsos Reid, Eight in ten (80%, +3 pts) agree that it is possible to be financially secure and not own a home, and 46% (+3 pts) feel owning a home is less important now than it was 25 years ago.
Home Ownership Debt With Family
When we bought our home in 2009, I could carry the mortgage on my income and saved Mrs. CBB’s.
If we hadn’t and continued renting, we likely would have saved enough to put a downpayment on a home, but affordability and options would be slim.
However, there are options if you’re fortunate to have in-laws who want to jump into home ownership debt with you.
Unfortunately, that was not the case for us in 2009, but thankfully, we had the crop pick.
The Ipsos Reid survey results also state that while owning a home on one income (or even two) may no longer be feasible for many Canadians, half (51%, no change) say they would consider co-ownership with family or friends to afford a home.
Although many of you might have red flags and alarm bells, this shared home ownership arrangement is common.
Our friends bought a bungalow with the in-laws living on the main level while they pay half the mortgage residing in the basement.
I’d consider this arrangement if it were my only option besides renting as a low-cost ownership option.
You’d still own half the home and build shared equity; however, it gets tricky if someone needs out.
- What if your parents move into a nursing home or long-term care facility?
- Could you afford to pay the entire mortgage if one or both of your parents pass away?
- Do you have a plan B just in case everything falls to pieces?
Some older people don’t have work pensions, and a chunk of retirement money would be the sale of their home and the government.
I think it’s a housing arrangement that needs to be considered, not just for current affordability but for any future financial hiccups.
Is Home Ownership Debt Worth The Hassle?
Not many people can pay cash to buy a home without the stress of having a mortgage.
Is home ownership debt worth the hassle? Sure, if you’re prepared for any downfalls.
Also, it’s essential to consider more than whether you can afford a home.
Based on these two questions, coupled with rising interest rates, inflated house prices, and job security, I’d probably hold off now.
We waited to jump into the housing market, and there’s not a day when we’re not thankful for our decisions.
Do what works for you and not what society or old-fashioned timelines tell you to do.
Things aren’t the same as it was, and options come with that change, beginning with what YOU need.
Discussion: What advice would you give someone looking to buy into the world of home ownership debt?
Leave your comments below.
Thanks for reading,