Thursday, 3 April 2014

First-Time Buyer Blues: Don't Be Glum. Be Smart!

I conducted an open house this weekend for a comfy three bedroom house in Toronto that is priced under $500,000 with no parking. It was a cute place, in a part of the city that is improving. Not a bad area, but not a well-serviced one yet. Because I was under that magical $500K mark, there were many, many first-time buyers lining up to see the house. It was packed.

The thing is, I have never seen such a sad bunch of dejected buyers for quite some time. They were zombies,  marching through one open house after another with a visible sense of hopelessness. They have become aware of how competitive it is to buy a Toronto house in the starter home range so far in 2014. Bidding wars are expected.

Like a therapist, I listened to their tales of woe. Many of them have shared experience, and have drifted down the same path. They live downtown or in a nice Toronto neighbhourood in a pleasant rental unit. They thought: "Hey, how about I buy a house instead of renting an apartment?" I think it's a good idea. Why not build some equity to pay down your own mortgage instead of paying down your landlord's mortgage?  The thing is, they often rent in very central neighbourhoods like downtown, Trinity-Bellwood or Little Italy. At first, when they begin their house search, they check out house prices in the neighbourhood they live and realize it's not really affordable. Often, they then seek out an advanced emerging neighbourhood like the Junction or Leslieville. Yes, it's a little less central, but they are groovy hoods that are clearly on the upswing, already stocked with the obligatory hip coffee shops, Toronto Life-featured restaurants and all the yoga you can stretch out of your body. Some first-time buyers, who can afford certain emerging neighbourhoods, will look to the Danforth Village, and the Junction Triangle - but even these hoods have become highly competitive. If you're looking to buy a house under $500K, you may need to revisit your approach.

With all that said, it is easy to see why the first-time buyers become down. They are used to renting in a great neighbhourhood where they can spill out of their home and have a pleasant Spring walk to their local butcher or their favourite vegan bakery. The truth is, if you are looking for a house for under $500K, that can be tough, if not impossible. So, they wait for the market to change. The truth is, I don't believe any of the neighbourhoods listed above are going to become affordable any time soon. Even if we have a slow down in the housing market, there is still a shortage of houses in the city. Because of the provinces Places To Grow policies, all new construction is overwhelming high density. No more new houses are being built.

So, if you have a budget of under $500K and you cannot sink yourself  into bidding wars, you need to have a plan, and a little vision.  Here are some tips I think may get you to where you want to be:

1. Forget the House. Maybe you never lived in a condo before. Maybe the thought of them makes your skin crawl, but the truth is, you can find a great condo in a central area for a budget under $500K. Maybe you hate high-rises? No problem. Low rises and condo town homes are great investments. You can find them all over the city in your price range. That way, you can have a neighbourhood  a short walk to the nearest subway. You can linger at the espresso bar down the street before work or hit up the gym on your return.  And if you need a little outdoor space, you pick one with a rooftop deck and a bbq. Easy Peasy.

2. Save or Make More Money. This is a risky option. In the past five years, any one saving money has probably lost out. During that five years, the amount put aside likely wouldn't be enough to cover a home's price appreciation during that same time. Houses, in my estimation, will continue to rise in value. Still, if you can find a way to increase the amount you can qualify for, it will lead to more options. Also, if you have a larger down payment, you can afford a higher price point.  Maybe you are on the verge of a giant promotion or you have some family money coming your way. That may change your options. 

3. Pick An Emerging Neighbourhood That's Just Starting to Turn Around. So maybe as a first time buyer with a budget of $500K you want a house, and and condo won't do. You have to have a yard, and you just don't want to pay maintenance fees. Fair enough. Then you need to be a bit of a visionary here.   Forget about the all-star neighbourhoods. 10 years ago, Leslieville was the dumpy nowhere land between Riverdale and the Beach. Tumbleweeds would roll Queen East at night because there was nothing going on and no one was around.  You need to pick the next Leslieville.  In the east, there are still a few opportunities in the Danforth Village, though I suspect those days are numbered. You need to look to the neighbourhoods next to the ones exploding in price. In the east, you may want to consider Scarborough. It's one of the most undervalued parts of the city. In the west, you may want to try north of St. Clair in the Caledonia, Fairbanks, Keelesdale, Earlscourt and Corso Italia neighbourhoods. Sure the hip factor is not there yet, but it's coming. If you want the lower price, you have to get there before things change. For even lower prices, there is Mount Dennis and Weston. Yes, Weston is further away and hard to get to, but there is a GO station straight to downtown soon and I believe there is even a subway link in the works for Weston to the new Eglinton station.  These neighbourhoods can be the Riverdale and Roncesvalles of tomorrow. Get in now.

So first time buyers with a  budget under $500K, don't be so glum if you want to buy a house. You just need to tweak your dreams a little. If you just can't leave downtown, then get a condo. If you just have to have a house, then you need to go a little further afield. I know it will feel strange living in an area you may have never even visited. I've done it in Leslieville 2004! In time, though, you can make that area your home. Hopefully, with the other first-time buyers moving out there, the restaurants, the daycare, the cafe with the great patio will be right behind you.

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