Rob Carrick is away on holidays, so this week’s newsletters will be written by personal finance reporter Salmaan Farooqui.
Like many millennials, I always figured home ownership would be out of reach for me.
But when I left Toronto and settled in a small town in the interior of B.C., prices were suddenly within a range I could potentially afford. That realization and subsequent search for a home felt a little surreal, given that until I moved here two years ago, I truly believed I’d be a lifelong renter. There was – and continues to be – a lot that I don’t understand about the home-buying process, specifically about how to ensure that I’m not leaving myself too financially stressed.
Even though real estate in some of Canada’s smaller communities is more affordable than in big cities, it has risen sharply since the start of the pandemic. And any purchase still requires a massive amount of money upfront for a down payment and various closing costs, including legal and administrative fees, among other things. On a $250,000 condo, for example, that can reach almost $20,000.
So how much money should you leave in the tank?
Jason Heath, managing director at Objective Financial Partners in Markham, Ont., says there’s no doubt that fear of missing out on a runaway housing market is leading some people to stretch themselves too thin when buying a home.
Once the sale has closed, Mr. Heath says buyers should still have liquid or semi-liquid cash available because the costs associated with ownership are wildly different than renting. By liquid or semi-liquid he means money in a savings account, or in a low-risk TFSA, that can be accessed in a day or two. A line of credit is another option, one that is better than turning to credit cards but not as good as cash, in an emergency.
The amount of money you should have saved largely depends on the type of property you’re buying.
A small, newer condo will likely be safe from most surprise costs, so your emergency fund can be a few thousand dollars. An older condo could require upfront cash and condo fee hikes for unforeseen maintenance issues like roof problems or elevator breakdowns, which buyers should keep in mind.
Much more can go wrong in an actual house, where expenses for pricey repairs can add up quickly if there are problems with plumbing, HVAC systems, roofs and other repairs. One general estimate is to expect to spend between $3,500 and $7,300 per year on these kinds of expenses, per year.
All financial decision as large as a home purchase come with risks. The tricky thing about a home is that the true costs sometimes only appear after the purchase, Mr. Heath says.
Those expenses can even strike in a brand new condo: all it takes is a pipe bursting or flooding and now you’re replacing things like hardwood floors, furniture and other things that may or may not be covered by insurance, or could require you to pay a deductible even if you’re covered.
“Homeownership is kind of like owning a car: you have to expect that every once in a while something comes along that you need to pay for on short notice that isn’t going to be all that exciting and you’re not going to notice a difference, but it need to be done,” says Mr. Heath.
Are you, like me, wondering how expensive of a house you can actually afford – and have enough left over to live your life? The Globe’s very own “Real Life Ratio” calculator will help you figure out if a house will make you house poor.
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Salmaan’s personal finance reading list
The downsides of using ‘buy now, pay later’
Ever since ‘buy now, pay later’ became an option on checkout websites everywhere, I’ve been wondering how many people actually use the option and whether it comes with risks. This article talks about why to avoid the tool.
Does a short-term mortgage still make sense?
It feels like we’re on the brink of the last interest rate hike for a while, and many people shopping for a mortgage are going for variable or short-term fixed rates. In this article, Rob McLister talks about whether that’s still a good strategy, and which kind of homeowners might consider locking into longer terms anyway.
Cryptoverse: Bitcoin is back with a bonk
People aren’t shouting about crypto from the rooftops any more. But anyone still holding would have noticed that 2023 got off to a strong start for many cryptocurrencies. This piece talks about some of the gains and a new meme coin called Bonk.
The art of spending money – and what it reveals about who you really are
As someone in the housing market for the first time, I’ll have to change how I spend in different parts of my life. This piece on people’s reasoning around how they spend gave me an opportunity to think: wait, why do I spend money on the things I do? And if my spending habits are forced to change as a homeowner, it could be a good lens to approach cutting back.
Are you worried about losing your luggage?
Have you ever used an AirTag or other wireless tracking device to locate or retrieve your misplaced luggage? If you’re up for sharing your experience in an interview, please e-mail Globe personal finance reporter Erica Alini at email@example.com.
New products that caught my eye
My current home is in an older building that has some residual smells, including smoke. I love candles, but I can’t have them going all the time because of fire hazard. Recently, I bought a wax melter, which you can leave on for however long you want. It’s done wonders to ensure my house is smelling pleasant when I’m welcoming guests or coming home after being outside for a while. Melters can be as cheap as $29, and wax for them can be cheaper than candles.
The money-free zone
Nominations for the Oscar’s were released on Tuesday. One of the only new movies I watched in 2022 was All Quiet on The Western Front, a gritty and sobering film adaptation of a novel depicting the First World War from the German side. It garnered nine nominations for the coming awards show.
What I’ve been writing about
- Sellers in small communities are more stubbornly holding onto listing prices even in the current real estate environment, banking on low inventory and historically high demand to keep values afloat.
- Rental incentives like free month’s rent and cable subscriptions were commonplace during the pandemic. Now they’re drying up in Toronto and Vancouver’s highly competitive rental market.
- Tech layoffs are all over the headlines, but recruiters say tech-related jobs are still some of the highest in demand as many organizations continue to experience labour shortages.
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension