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Household Finances This will be the year that kills home-ownership dreams for many aspiring first-time buyers

This is the year that kills home-ownership dreams for some aspiring first-time buyers.

Mortgage rates are expected to creep higher in 2018, which means declining affordability. As expensive as houses in some cities are, they may never be as accessible to the first-time buyer as they are today. The choice these buyers face is to jump in now, or accept that they may never own a home unless they settle for a condo, move to a cheaper city, get help from parents or advance their careers in a way that brings a big pay increase.

Higher rates were for years a phantom menace that never showed up. But rates for borrowers did move a little bit higher in the latter half of 2017 and there's an expectation of further increases in 2018. In its most recent Housing Trends and Affordability report, RBC Economics predicted the Bank of Canada's trendsetting overnight rate would rise by a total of 0.75 of a percentage point this year, and that the longer-term rates guiding mortgages would rise in tandem. "Our view is that the days of ultra-low interest rates in Canada are over," RBC said.

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The toughest now-or-never decisions about home buying will be made by people in Toronto, Vancouver and Victoria, which were singled out by RBC as being the most unaffordable markets. Ottawa and Montreal were showing "affordability tensions," while the Prairie and Atlantic regions weren't bad at all for buyers.

In late November, the mayor of Saint John posted a note on Facebook inviting Toronto and Vancouver residents to move to his city to benefit from short commutes and houses priced well under $200,000. But we haven't seen evidence yet that desperate home buyers are migrating out of expensive cities.

Higher rates might depress housing prices or cause them to stagnate – that's an argument for not rushing into a house purchase. But higher rates and lower prices can offset each other in affecting your mortgage payments. On a house bought at the national average price of $503,852 in November with a 10-per-cent down payment, your monthly cost would hardly change from current levels if rates rose half a percentage point and prices fell 5 per cent.

A sharper increase in mortgage rates could really hurt the housing market, as could a recession. But neither outcome seems likely in today's slow-growth world, where the economy has struck a balance between exuberance and despair. Housing is maybe the biggest winner of all economic sectors right now. Rates remain exceptionally low on a historical basis, yet the economy is healthy enough to sustain demand for homes.

Another reason not to procrastinate about home buying is the potential for more measures from government and regulators to make it harder to get a mortgage. The latest steps, including a stress test to see if people with down payments of 20 per cent or more can afford higher mortgage rates, kicked in Jan. 1.

The housing sector would love for governments to rescue first-time buyers. The Canadian Real Estate Association has proposed the remarkably bad idea of allowing parents to withdraw money from their registered retirement savings plans to help their children buy a home. But governments now seem to understand the housing market needs less stimulus, not more. On balance, there's no significant help for buyers coming from the provinces or Ottawa.

If you're struggling to decide whether to get into the housing market, consult The Globe and Mail's Real Life Ratio calculator. I designed it to help first-time buyers and current owners see if they can afford to own a house and cover other expenses like saving for the future, making car payments and paying for daycare.

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The RLR calculator shows how much money is left over for you and your household after the cost of owning a house and other financial obligations are covered. If you have a down payment saved and an RLR score of acceptable or better, it's hard to see any benefit in delaying a home purchase.

It's a natural result of having a dynamic housing market that some people will never be able to buy a single family home in the city of their choice. In 2018, aspiring buyers and the rest of our housing-addled population will have to accept this reality and move on with their lives.

A lot of people think Rob Carrick is anti-homeownership. He's not, but he doesn't want people to buy homes they can't afford to own.
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