Individuals, couples or young families used to think of their first homes as “starter properties,” which they would later upgrade for more space, essentially climbing metaphoric property ladders until settling on forever homes later in life.
A lot of industry experts say that’s no longer the advice they give their clients these days. Waiting several years to purchase second homes could result in a jump that prices people out of higher rungs of the property ladder – even with the market softening at the moment.
The advice is often to stretch your budget today – while still ensuring affordability – for a property you can live in over the long term. It might mean cutting back on other expenses to boost a down payment, knowing you’re buying a home you’ll stay in for more than just a few years.
The term “forever home” is a bit of a misnomer because no one can commit to living in the same place for the rest of their days, but people should buy properties they know they can stay in for some time, says Connie Buna, managing broker at Keller Williams Realty VanCentral in Vancouver.
“I really try to take a longer-term perspective with people when I’m having an initial consultation,” she explains. “If I’m meeting a new buyer and they’re looking at getting into the market for the first time, we talk about the long range. My professional opinion on real estate is that it’s a long-range holding. If you’re not interested in having that home for five-plus years, there’s lots of other risk factors at play.”
One is buying a home you’ll quickly outgrow should you choose to start a family. Ms. Buna herself purchased her “forever home” a few years ago, stretching to get the property that suited her family in the neighbourhood it wanted.
The problem today is that the rungs on the property ladder are much further apart than they once were in many markets, especially if you’re considering purchasing a condo as a “starter property.”
In the fall of last year, the average price of a detached home in Vancouver was more than $2-million. In the Greater Toronto Area it was more than $1.5-million. Condos in both of these cities went for an average selling rate of just under $800,000.
“In a market like we have today it’s a great idea to stretch yourself if you can,” says Natalie Lewin, a real estate agent with Re/Max in Toronto. “We know that real-estate markets go down, but that segment of the cycle is usually the shortest.”
Outside major urban centres, real-estate markets that function like many did only a decade ago remain.
In Lethbridge, Alta., the real-estate market might be considered a rarity in Canada: affordable. Newcomers to the city south of Calgary can still find what traditionally was called a “starter home,” some priced in the mid-$200,000s – a condo or townhouse, a property buyers will likely grow out of in a few years.
The average real-estate listing in the city in the second quarter of 2022 was $346,000, according to the Lethbridge and District Association of Realtors, which is still record-setting for the area, up 6.4 per cent from a year ago.
“I believe in Southern Alberta, yes, we’ve seen some run-up [in prices] like other places, but we believe we’re very controlled and we’re still in a very good place to buy,” says Dallas Harty, a real-estate agent with Remax in Lethbridge.
Many of Mr. Harty’s clients are new to the real-estate market, either flocking here from other parts of Alberta like Calgary, which is only a two-hour drive away, or from out of province, hoping to get into a decent-sized place they can afford.
A person might start on a property ladder and upgrade in five to eight years.
“I would offer that coming to a market like ours, it’s definitely more affordable, so that you might be able to get a little bit more [space],” Mr. Harty says. “But again, you should always do what’s affordable.”
As is the case with investments, playing the long game often pays off.
In the 1960s, Ms. Lewin’s grandfather bought a home in Pickering, Ont., a city just east of Toronto. He viewed the property, wanted to put a deposit down, but he was told he needed to pay in full, which was $15,000. He came back two weeks later, and the price had gone up to around $17,000.
He stretched himself and bought it anyway. The family still owns that home and “it’s now worth over $1-million,” Ms. Lewin says. She tells the story to clients to show that real estate can also be viewed as an investment, and a potentially lucrative one at that.
“We know that even if that market is going to be dropping a little bit, it’s always going to be trending up.”