Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

If house prices fall in the months ahead, it’s a golden opportunity for first-timer home buyers with solid finances and a plan to own for at least five years.

marchmeena29/istock

High on the list of financial behaviours that need to change in the postpandemic world is overspending on housing.

It’s now obvious that the financial commitment of owning a home left some people without savings that would have softened the financial effects of the pandemic-caused economic shutdown. What we need going forward is a more sustainable model of home ownership where people can pay for their homes and have money left over to save for retirement and enjoy in ways such as family holidays and meals out.

Our contribution at The Globe and Mail toward this goal is a relaunch of the Real Life Ratio calculator, an online tool originally developed at the peak of the housing boom to help people see whether a home is affordable. You can access it here.

Story continues below advertisement

The economic damage done so far by the pandemic shows the importance of saving cannot be overemphasized. Veteran mortgage broker Vince Gaetano found this out in recent weeks as he talked to clients who have lost a job or had their income interrupted.

”I’ve been very interested to find out how they feel, and one of the underlying themes is a sense of embarrassment and regret,” he said. “They regret not saving money, they regret certain purchases, they regret not having a backup plan, an emergency fund, any type of investments.”

Prepandemic, the big home buying risk in cities with strong real estate markets was missing out on rising prices. You bent your finances to fit your house and waited for an immediate payoff through price appreciation.

The pandemic is a reminder of the need to make your house fit your finances. The Real Life Ratio calculator helps you do that by taking a tougher-minded view of what’s affordable.

Affordability in the mortgage-lending business is based on formulas that compare your income with the amount of mortgage and other debts you have. If your mortgage preapproval or application goes through, it means your lender is confident you won’t default on payments. In no way does the approval mean you can afford the house and life’s other costs.

This is where the Real Life Ratio calculator comes in. You can model what your finances would be like based on a particular mortgage payment plus other expenses such as daycare, car payments, home maintenance and long-term savings for retirement and your children’s postsecondary education.

Play around with this calculator while you look at real estate listings. Check out how buying a home at the upper limit of affordability crowds out other spending, and how spending less opens up all kinds of opportunities to both save and spend.

Story continues below advertisement

We will see the investment value of houses tested in the months ahead. Housing market optimists and realists are duking it out right now over whether prices will fall, be stable or even resume their upward path in the hot markets.

But it hardly matters how much your house is worth when the economy falls into recession. Having your house rise in price doesn’t help you pay the bills if your job disappears or your hours are cut.

You can use a home equity line of credit to help pay bills, but you’re basically renting your own money. Interest must be paid monthly on money taken from a HELOC, and you have to repay the principal in full eventually.

The Real Life Ratio calculator can be a bit of a buzzkill. If there won’t be room to save anything should you buy a particular house, you’ll see this plainly. So, what will you do about it?

Here are some thoughts on that:

  • Save longer: A weaker housing market would give buyers a chance to save a bigger down payment while prices fall or remain stable.
  • Buy smaller: Remember that you can renovate to create extra space if needed later; if your friends and family can’t stop talking about how small your home is, tell them your mortgage is small, too.
  • Buy farther away: The work-at-home trend may help you buy in the suburbs or a more far-flung community without entering commuter’s hell.
  • Rent: Losing the froth in the housing market should help rein in greedy landlords.

If house prices fall in the months ahead, it’s a buying opportunity for first-timers with solid finances and a plan to own for at least five years. Keep it real if you’re out there house-hunting. Do not buy without first running your home through the Real Life Ratio calculator.

Story continues below advertisement

Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies