Despite real estate prices declining slightly from the highs of 2022, prices are still at relatively high historic levels. This, coupled with historically high rates and the associated payments, has continued to make affordability a big issue, especially for first-time home buyers.
High real estate prices mean large down payments and large mortgage payments. For a young couple paying historically high rent coupled with the overall high cost of living, saving for a down payment has never been so difficult.
I hear “Baby Boomers” that purchased homes in the 70’s, 80’s, or “Generation X” in the 90’s or early 2000’s say: “We did it, and rates were high then too!” “Kids today just complain, are lazy, don’t want to work etc.”
As a Hamilton Mortgage Broker since the 1990’s and a father, I will personally dispute each of those points, but let’s break it down to put things in perspective.
Yes, rates might have been high then as well, however, that’s where the comparison ends.
Let’s make a comparison of a family purchasing a home in 1999 with a family purchasing in 2023
The average family purchasing the average home in Hamilton in 1999 would have been purchasing a home valued at approximately $167,000. This average family would have been making approximately $60,000 in total income and would have needed to save up a minimum down payment of 5%, or $8,350. If they were strong savers and wanted to make a 20% down payment they would have had to come up with $33,500
The mortgage including CMHC insurance premiums would have been $164,996. Even using an elevated interest rate of 7% and 25-year amortization the payment would have been $1,155 per month. Based on income of $60,000 per year 23% of their income would be going towards making your mortgage payment.
Fast forward to 2023 and the children of that average family now have started a family of their own and would have been looking at an average purchase price of $800,000. Their income would now be approximately $97,000.
Based on federal government rule changes made in 2016, the minimum down payment required would be 5% on the first $500,000 and then 10% on the amount over $500,000, so $25,000 for the first $500,000 then an additional $30,000 on the additional $300,000 for a total of $55,000 just for a minimum down payment. The CMHC mortgage insurance premium on this mortgage alone would add $29,800 to the mortgage.
In order to come up with a 20% down payment they would have had to come up with a whopping $160,000 down payment.
Now, with a total mortgage amount including insurance premiums of $774,800 and based on an interest rate of 5.09% rate and 25-year amortization, you have a payment of $4,546 per month.
Based on an income of $90,000 per year, over 60% of your income would go to making the mortgage payment alone.
So, if you are a first-time home buyer and someone tells you that they bought their first home a couple of years after school and the rates were very high then too, have them read this article. If on the other hand, you were lucky enough to have purchased your first home in 1999, realize that your children are facing a much different reality.
So, to answer the initial question of whether your parents really had it easier when they bought their house, the answer is yes, they most certainly did.
Contact Canadian Mortgage Authority, your Hamilton Mortgage Broker, to help you get on the Road to Home Ownership.