A young Toronto planner confirmed something that’s dominated conversations with my over-30 friends as of late.
Many (especially those lacking a trust fund or who are in the arts) may be unable to afford a home in Toronto, and as a result, condos and apartments are the future for millennial families if we don’t want to flee to the ‘burbs.
But there’s nothing wrong with that.
Shannon Lee Simmons, a certified financial planner at the New School of Finance in Toronto, said that the new mortgage rules that took effect yesterday will make it harder for many millennials to qualify for massive mortgages in Toronto, so home ownership isn’t a reality for many.
As you’ve probably heard, the new rules involve a stress test for all insured mortgage applications.
Basically, it refers to a test to determine if a borrower could afford to repay a loan if the rate increased.
Though many lenders are currently offering mortgages at relatively affordable rates, the potential new borrowers are now assessed against a five-year standard rate of 4.64 per cent for a five-year loan.
Whereas the rule used to apply only to certain segments, as of yesterday, it now applies to any insured mortgage for a buyer putting down less than 20 per cent of the home up front.
This means that people will qualify for less money in a market where a rundown, detached home will set you back at least $1 million. And few people I know have $200,000 laying around (20 per cent) for a down payment.
Great, right? (Ugh).
Simmons said that millennials looking to purchase their first homes may have to rent for longer than they had hoped for – perhaps as long as three to five years. “Some young people who had hoped to purchase this year may now be out of luck,” she says.
“We are all going to be raising babies in apartments,” Simmons said, adding, “But that’s not a bad thing.” She says that, if you want to buy a home, the only thing you can do is save by spending less or making more. You may be better off in the long run as a result of renting.
Her advice is to not go overboard with rent and to stay in an apartment with affordable rent for three to five years, procreate, pay for day care and come out of it all with savings.
A brand-new report just revealed that the majority of Toronto parents can’t afford Toronto’s pricey daycare costs. “Many millennial home-owners are baby-poor as a result,” said Simmons. “They purchase their first home, then struggle to pay for daycare.”
Not only that, as Simmons points out, Toronto’s red-hot housing market has affected the rental market as well, prompting landlords to increase their rents on larger apartments. Furthermore, as we reported not too long ago, there are fewer rental options available in general as property owners cash in on the lucrative short-term rental market offered by sites like Airbnb.
On the bright side, the new rules could prevent you from getting in an even worse situation down the road, when instead of trying to keep up with the Joneses manicured lawn, you’re fighting to keep the house you worked so hard to buy.
At the end of the day, there are worse things that can happen than having to live in an apartment with a newborn (although we can’t say the same for your neighbours). “Families have been happily living in apartments for years in places like New York and parts of Europe,” says Simmons.
And there’s always suburbia.
With the maddening amount of city construction, over-saturation and traffic, is buying a home on the outskirts and residing yourself to a life in suburbia really that bad? I never thought I would say that (really, truly).
But, after living in the city confines my entire life, the thought of living and raising kids in the core seems stifling to me. I was visiting friends at their stunning (yet affordable) home in the suburbs not too long ago, and not only could you see the stars in their backyard (which is the size of some city parks), the air actually smelled a lot cleaner.
It was a refreshing wake-up call.
The other thing is, though, the thought of wasting hours of my life on a GO Train each week or in highway traffic seems nothing short of soul-sucking and borderline torturous.
But –and it’s a big ‘but’ – our ever-growing decentralized work culture and freelance economy means many of us will no longer need houses in the core because we can work from home, as Simmons highlights.
Whether your child is raised in a dense downtown condo or in the sprawling backyard-filled suburbia, it’s how you raise them (morals, values and a sense of awareness of themselves and others) that is going to have the biggest impact on the people they will become.
And you don’t need too much money or square footage to do a good job.
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