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The weakening trend in house prices has done next to nothing to help affordability in the country’s most expensive markets.

A 2019 home ownership strategy for those who want to buy in these cities, but can’t afford it: Keep building your down payment to reduce the amount you borrow. Current trends in both prices and mortgage rates suggest there’s no need to rush into the market.

On a national average basis, the numbers for December, 2018, for resale homes are encouraging if you’re struggling to afford a first home and hoping for a pullback in prices. Prices on average fell 4.9 per cent on a year-over-year basis and 2.5 per cent from November. Sales for the year were the worst since 2012.

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For subscribers: Real Estate: Rules, rates and reality checks for first-time home buyers

Several spots are affordable for first-time buyers as we head into 2019, including Calgary, Ottawa and cities throughout Eastern Canada. But Vancouver, Toronto and surrounding cities remain an affordability desert.

Vancouver stands out for sheer stubborn expensiveness, despite falling prices. The Canadian Real Estate Association reported a 2.7-per-cent price decline in December to an average $1,032,400. If you’re fortunate enough to be able to put down 20 per cent on a five-year fixed rate mortgage at 3.5 per cent, your monthly payments would be an incredible $4,122.

Lenders qualify people applying for a mortgage using measures that include the gross debt service ratio, or GDS. Your mortgage payments plus property taxes and heating bills for a year must come in at 35 per cent or less of your gross household income. To afford that $4,122 mortgage in Vancouver plus monthly property taxes at $350 and monthly heating at $125, you’d need household income of at least $157,611.

Expensive housing is often found in large cities with many low- and medium-income people who will never get even a sniff of home ownership. Vancouver’s median total household income is roughly $76,500 or so (based on 2016 census numbers adjusted to 2019 levels using annual inflation data). Double that and you still couldn’t carry a house priced at the average December selling price.

In Toronto, the average 2018 price for all types of property was down 4.3 per cent. CREA pegs the average end-of-year price at $764,200, which means a monthly mortgage payment of $3,052 with 20 per cent down. You’d need pretax household income of almost $121,000 minimum to afford that, which means a lot of people will be shut out of the market. Median household income in the city is just $82,650 or so on an estimated 2019 basis.

There is little affordability relief beyond urban Toronto and Vancouver. In both Hamilton and Victoria, prices were up sharply in December and the cost of a mortgage on a home priced at the average level was well ahead of median household incomes.

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Farther afield from expensive cities, the affordability outlook for 2019 improves dramatically. Ottawa, a 4½-hour drive east of Toronto, ended last year with an average price just under $400,000. The monthly payment for a mortgage on a house at that price level is about $1,850, which is comfortably affordable if you make the median household income of close to $91,000. And that’s with a 10-per-cent down payment.

Western Canadian cities such as Edmonton and Winnipeg also look affordable, and Calgary qualifies as well. In Atlantic Canada, Halifax and St. John’s remain accessible to new buyers. Saint John is an interesting story – prices were up 13.8 per cent on a year-over-year basis in December, yet the average price remains affordable at $181,576.

A lot of mortgages being arranged these days have down payments of 20 per cent or more, which means there’s no need for the borrower to pay for mortgage default insurance. Previously, biding your time to build a down payment in an expensive city meant running the risk that prices and/or mortgage rates would rise. The money you saved on mortgage insurance could be offset by the need to borrow more.

Today, with prices weakening in some cities, taking time to build a bigger down payment could benefit you twice over. Ideally, you’d put down more on a house that costs less.

The mortgage rate trend is your friend as well. Concern about the economy has pre-empted the rate increases we were expecting and even led to a modest decline recently in five-year fixed rates. Home affordability in expensive markets is still pretty bad, but there’s hope for better in 2019.

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