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Saving for a Home in Canada’s Two Priciest Markets

When it comes to Canadian real estate, it’s very much Vancouver and Toronto vs. the rest of the country; those two markets are far-and-away home to the priciest real estate in the country and locals have grappled with affordability issues for years.

The Canadian Real Estate Association even offers a monthly average Canadian home price and an average Canadian home price excluding those two markets.

In April, for example, the average Canadian home price was $495,000. Remove Toronto and Vancouver from the equation, however, and the average price drops $109,000 to $386,000. The average Toronto home cost $804,584 in April; the average Vancouver home cost $1,067,266.

So, yeah, homes in those cities are expensive. But you knew that already.

However, you can still get into the housing market if you have a plan. Spoiler: It will require diligent saving habits.

The down payment

The first – and most difficult – step in your journey to homeownership is to save the down payment. It’s daunting and may seem impossible – especially given the pricey homes in Toronto and Vancouver. Not to mention other expenses that stand in your way, such as debt and rent. But if you have a plan, you can succeed in saving up the necessary lump sum to purchase a home.

For our purposes, we’ll assume home purchases of $804,584 and $1,067,266 (the average home prices in Toronto and Vancouver respectively) and look at how much is required to save both the minimum down payment required in those markets (5%) and the minimum down payment required to avoid having to pay mortgage insurance (20%).

To get a better sense of your budget, check out our mortgage affordability calculator and play around with some numbers to see how long it will take to save your own down payment.

Saving for a home in Toronto

The key to saving for a down payment, regardless of where you plan to buy a home, is to just get started. Don’t fret about how much you’re able to save – something is better than nothing. Assuming you aren’t carrying any debt and you have an emergency fund already in place, saving for a down payment is a great next savings goal.

If you decide to buy the average home with 20% down, you would need to save $160,916. That may seem insurmountable, but it’s doable. Say you’re able to save $500 per month toward that goal. It would take 321 months or 26 years. Up those savings to $1,000 per month, though, and you cut your time in half. (Keep in mind that this assumes the money isn’t making any interest. It can be invested or placed in a high-interest savings account to turbocharge your savings.)

The reality for many, though, is that saving over $150,000 for a home is unrealistic (after all, that sum alone could buy a house outright in various Canadian markets). For those people, they might consider taking on mortgage default insurance and putting 5% down.

That would require a down payment of $40,228, which could be saved in 80 months (at $500 per month) or 40 months – just over three years – at $1,000 per month.

Saving for a home in Vancouver

Think Torontonians have it bad? Wait until you see what it takes to save for the average Vancouver home.

Saving 20% ($213,453) of the average Vancouver home ($1,067,266) would take 35 years at $500 per month (again, assuming it’s saved in an account that earns zero interest). It would take 17 years if saving $1,000 per month.

To save 5% ($53,363), though, would take nearly nine years (at $500 per month) or nearly 4.5 years at $1,000 per month.

Once your down payment has been saved, you’ll be well on your way to qualifying for a mortgage.

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The good news

As mentioned, your savings can work a lot harder if you know where to put them.

If your horizon for buying is less than five years, you can put your savings into a high-interest savings account. The best high-interest savings account currently offered in Canada is EQ Bank’s Savings Plus Account, which offers an interest rate of 2.3%. HISAs are a good option for shorter-term savings because they’re very liquid accounts (you can access the money easily) and your principal is guaranteed.

Have longer than five years to save? Some suggest investing in a tax-free savings account (TFSA) or registered retirement savings plan (RRSP). TFSAs allow the same sort of liquidity as HISAs; RRSPs, meanwhile, offer the first-time homebuyers plan which allows account holders to access up to $35,000 tax-free from their account with the purpose of buying a home. The money has to be paid back, though.

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As mentioned, using RRSPs or TFSAs for your down payment are usually advisable for longer-term savings. That’s because, depending on the investments you hold within the accounts, interest may fluctuate up and down. If the markets take a tumble, so too can your investment. (Of course, you may also earn impressive interest if markets soar.)

Finally, GICs offer another great option for saving a down payment. They work by locking your money in for a set period of time (typically 90 days to five years) and offer guaranteed returns. Right now, rates range from 0.7% (for a 90-day GIC) and 3.36% (for five years). GICs are a good option if you have a set buy date in mind – and won’t need to access the money before your GIC term is up.

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Other alternatives

So far, we’ve used average home prices in Toronto and Vancouver for our savings estimations. However, if you’re a first-time homebuyer, you may be looking for something more affordable in a starter home. And there are plenty of options for you.

You could look just outside either city or opt for something smaller and more affordable than the average home – such as a condo. One thing that should be kept in mind, especially by first-time homebuyers, is that average prices are sometimes misleading. Remember: those prices are somewhat propped up by current homeowners who are already on the property ladder and therefore can afford pricier homes.

And there are options for homes that are more affordable than the average in both cities, so managing expectations is important.

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Photo by NordWood Themes on Unsplash