First-time buyers rethink starter homes amid affordability challenges

Challenges in the current housing market

For Bryan and Maggie, the dream of homeownership seemed increasingly out of reach the more they searched for 'starter homes' in their price range. "We were looking at homes that were well over our budget," Bryan told the Globe and Mail. "It felt like every time we found something we liked, it was either too expensive or already sold."

Their situation mirrors a broader concern among first-time buyers. A Royal LePage survey revealed that 67% of first-time homebuyers in Canada were worried about having an insufficient down payment before purchasing. This concern was especially prevalent in major cities like Toronto, where 74% of first-time buyers expressed similar apprehensions.

To navigate these challenges, Bryan and Maggie sought financial assistance from family members, a strategy increasingly common among first-time buyers. The Royal LePage survey found that more than a third of first-time buyers received financial support in a lump sum toward their purchase, while a quarter received assistance with monthly mortgage payments.

Despite these efforts, the couple faced additional hurdles. High mortgage rates and stringent qualification standards made securing a loan more difficult. "The stress test requirements were daunting," McTavis told the Globe and Mail. "It felt like the goalposts kept moving."

Their experience highlights a significant shift in the housing market. Once seen as a stepping stone to homeownership, starter homes are becoming increasingly scarce and less affordable. In cities such as Toronto, renters may need to save for decades to afford a down payment on a starter home.

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Adapting to market realities

The couple, like many others, had to adjust their expectations and strategies. Instead of aiming for a conventional starter home, they considered alternative options such as purchasing smaller properties or exploring different neighbourhoods. This shift reflects a broader trend where prospective homeowners are reevaluating what constitutes an entry-level property. For the couple, stretching the budget in the short-term, made more sense for them in the long-term. “We don’t plan on moving again,” McTavish told the Globe. “For us, it was worth the stretch.”

Financial strategies and support

To overcome financial barriers, the Bryan and Maggie leveraged various resources. They took advantage of government programs designed to assist first-time buyers, such as the Home Buyers' Plan, which offer incentives and support to make homeownership more accessible. Additionally, they sought guidance from financial advisors to optimize their savings and investment strategies, ensuring they were well-prepared for the financial commitments involved.

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Expert insights on navigating the market

Industry experts emphasize the importance of flexibility and informed decision-making in today's housing market. Real estate professionals advise prospective buyers to conduct thorough research, set realistic budgets and consider long-term financial implications when purchasing a home. By adopting a strategic approach and utilizing available resources, first-time buyers can better position themselves to succeed in the current market.

Strategies for first-time buyers

For those determined to purchase a home, several strategies can help manage the financial demands, especially if stretching the budget to get into a step above a 'starter home' isn't possible.

1. Utilize savings and investments: Leveraging existing savings and investments can provide the necessary down payment. Tools such as our savings calculator can assist in planning how much to save monthly to reach your goal. Additionally, the investment growth calculator can project the potential growth of your investments over time, aiding in long-term financial planning.

2. Understand mortgage affordability: Before committing to a mortgage, it's crucial to assess what you can afford. Maybe, like McTavis and Blue, you can stretch your budget a bit more than you think is possible. Our mortgage affordability calculator helps determine the loan amount you qualify for based on your income, debts and other financial factors. This tool considers key metrics like the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios, which lenders use to evaluate your ability to repay a mortgage.

3. Explore government incentives: Various government programs are available to assist first-time home buyers. In Ontario, the First-Time Home Buyer Incentive offers a shared equity mortgage with the government to reduce monthly payments without increasing the amount you borrow. Eligibility criteria include being a first-time home buyer, having a household income under $120,000, and purchasing a home with a price at or below $500,000.

4. Consider alternative housing options: Expanding your search to include different locations or types of properties can also make homeownership more attainable. Exploring areas with lower average home prices or considering condominiums and townhouses may offer more affordable options.

The bottom line

While the dream of homeownership remains strong, first-time buyers must approach the market with careful planning and realistic expectations. By taking advantage of available tools, understanding financial commitments and exploring various options, prospective homeowners, including McTavis and Blue, can navigate the challenges of today's housing market and fulfill the dream of opening the front door to homeownership.

Sources

1. The Globe and Mail: Are starter homes still worth it? Some first-time buyers are rethinking the traditional home ownership ladder (April 16, 2025)

2. Royal LePage: Down payment dilemma: Canadian first-time homebuyers’ fear of falling short is escalating (June 22, 2023)