I remember exactly what I told my wife after the offer we made on our first house was accepted in 1992.
“I feel like someone is standing on my chest,” I said. That’s how the weight of responsibility for making mortgage payments and looking after a property felt at that pivotal moment. And then I quickly got over it.
All generations have their obstacles when it comes to buying a first home. But I have no trouble saying that for my wife and I, affording a house in Toronto was easy compared with what young people today experience. As first-time homeowners, we carried two car loans, started a family, saved for retirement and quickly added central air and a bunch of IKEA furniture to our house. All without undue financial stress.
This look back is brought to you in the hope that it sparks some consideration of what young people today are up against in the housing market. Whatever we’ve done as a country to fix this problem, it isn’t enough.
As a young journalist with The Canadian Press back in the early 1990s, I made roughly the median income for my age group. My wife was in that zone as well with her communications job at an insurance company. I’d estimate our household income back then at around $70,000.
Our decision to buy a home was driven by a lot of factors, one of them being that we rented in a building where the tenants underneath complained about the noise we made when we walked around. We also had the usual helpful input from family about the benefits of owning.
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Building a down payment was no biggie, and that’s not just because my parents helped us get started with some cash. I pulled some money out of my registered retirement savings plan under the still relatively new federal Home Buyers’ Plan, and so did my wife. Combined with aggressive saving, we put together enough for a 10-per-cent down payment in less than a year.
Toronto in the early 1990s was a buyer’s market, with lots of properties for sale and prices meandering through a down period. We took our time, looked at dozens of houses in our price range and finally picked one that suited us. The cost was slightly less than $200,000, or roughly three times our combined income.
The Toronto market has been in a slump in the past 12 months, so there is some similarity to our situation as buyers. But overall affordability is shockingly bad. The average home price in Toronto last month was $1.1-million, or 8.5 times the $130,000 our 1992 salaries would be worth today if adjusted for inflation.
Also, with an average price above $1-million, buyers must come up with a down payment of 20 per cent at least. That’s $220,000 for the average home in Toronto, compared with the $20,000 we needed for our 10-per-cent down payment.
I can’t remember the mortgage rate we had on our first house, but five-year fixed rates were in the 8 to 9 per cent range around the time we bought. We did get a small discount by getting our mortgage from my wife’s employer, so let’s use 7.5 per cent as our rate.
I’d estimate our mortgage payments at roughly $1,300 back in 1992, which was a handful but manageable. To create some extra breathing room, I eliminated one of our car payments by selling my newish vehicle and replacing it with a used replacement paid for in cash.
Today, young buyers face higher prices, lower mortgage rates and staggering levels of unaffordability. The monthly mortgage cost on the average-priced Toronto home bought with a 20-per-cent down payment and a 4.6-per-cent five-year fixed rate mortgage would be around $4,900. That’s more than double the $2,400 cost of our mortgage payments adjusted for inflation since 1992.
Older baby boomers than me had double-digit mortgage rates to contend with when buying their first homes in the early 1980s, while millennials have carried the full weight of price increases surging past income growth. Name a generation or a decade and we’ll find a reason why home buying for them was hard.
Today is special, though. If my wife and I were young first-time buyers, there’s no way we could afford the home we bought in 1992 without breaking a sweat.
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Rob Carrick