Young Canadians face brutal odds in the housing market, which surprises no one who has glanced at a listing lately. Consider someone fresh out of university, college or trade school. According to Glassdoor, the average starting pay in Canada is about $56,000. In Canada’s gloriously pricey market, that income plus a $25,000 down payment — assuming they manage to assemble one — buys a mortgage of roughly $246,000, including default insurance, on a $261,000 home. And that math pretends they owe nothing else — no car payments, no credit cards, no other loans.
Now, I don’t know where you live, but in most of Canada, that sum often lands you a charming mobile home or a studio/one-bedroom condo roughly the dimensions of a parking spot. In fact, fewer than seven per cent of all regions where the Canadian Real Estate Association (CREA) tracks median home prices had homes averaging below $261,000. (CREA doesn’t track Quebec.) In case you’re in a relocation mood, the regions that do are the Battlefords, Sask., Southeast Sask., Swift Current, Sask., Yorkton District, Sask., and Northern New Brunswick. And pack accordingly because in each, the nearest latte may be a country drive away.
Anyway, assuming ownership suits you (mathematically, it doesn’t for many), shoe-horning yourself into a home can be easier with a roommate. With that same $25,000 down payment, two qualified borrowers earning $56,000 with no debts can buy a $500,000 home, meaning enough for a two-plus-bedroom starter place, even if you have to head out to the burbs to find it.
Co-buying gains traction
“We come across people all the time who will be approved for $250,000 or $300,000 and they can’t buy anything because prices are too high,” says mortgage broker Joe Bondy with Dominion Lending Centres. He’s even hosted meetups for singles looking for a co-buying partner called the “Supermortgage Mingle,” and they’d draw “50 to 60 people,” he says.
The mathematics of co-buying
Co-buying gets you onto the property ladder and building equity in a principal residence. Based on the 10-year average gain of 3.2 per cent annualized — per CREA average price data — that works out to about an $85,000 tax-free gain on a $500,000 principal residence after five years, before expenses like realtor fees, maintenance, and the rest. These figures assume a 4.09 per cent mortgage rate, a 30-year amortization, a $500,000 purchase price and a $494,950 mortgage, default insurance included.
That hypothetical appreciation is on top of $23,400-ish each of accumulated equity from mortgage paydown if both buyers split the mortgage. This “forced savings” shouldn’t be underestimated. For some young folks who want to “live the life,” the only way to get them to save money is for a bank to take it from them first.
