Dreaming about buying your first home and wondering if you’ll ever be able to afford it? You’re not alone. You probably already know that navigating the Canadian real estate market is challenging for prospective homebuyers. Skyrocketing prices, fluctuating demand, interest rates, and the cost of living may make the dream seem more like a nightmare. On top of all that, you still need somewhere to live. How do you save a significant amount of money in a reasonable time, while still paying rent?
According to a recent study conducted by the money experts at Money.ca, the situation varies across the country. Their data reveals some good news for homebuyers. There are cities in Canada where affordability is within reach and cities where renting costs are lower. By combining affordability with lower rents, homebuyers can find a property they can afford and save up a down payment in much less time.
Related: Buying a Home for the First Time? Here Are 10 Easy Ways to Save Money
With prohibitive property costs and sky-high rents, Canada’s big cities like Toronto and Vancouver are the least favourable markets in the country. However, there are more accessible options in Canada’s smaller markets. While budgeting is essential to saving for your first home, so is lowering your monthly costs to save faster.
The study looked at rent affordability and the time it takes to save for a home deposit. They used average one-bedroom rent prices and annual income data to determine the percentage of income spent on rent. Then, taking average home prices from the Canadian Real Estate Association (CREA), they estimated how long it would take to save up a 10 per cent deposit for an average priced home. Their calculations revealed the best (and worst) cities by the time necessary to save a down payment.
Related: Scott McGillivray Weighs in on Renting Vs. Buying: When is it Smarter to Rent?
Top 10 Major Cities With the Best Affordability for One-bedroom Rentals
Quebec City is the top choice for prospective buyers looking to rent while saving for a home, with residents spending just 21.6 per cent of their annual income on rent. The average monthly rent for a one-bedroom unit is $911, while the average yearly wage is $50,500, making it 37 per cent lower than the national average rent-to-income ratio of 34.5 per cent.
Montreal ranks second, with renters allocating 26.3 per cent of their $43,800 annual income toward a $960 monthly rent. And St. John’s, NL, comes in third, where residents spend 27.7 per cent of their $39,100 annual income on a $904 one-bedroom unit. All of these cities are ideal for saving toward homeownership.
Related: What is a First Home Savings Account and How Does it Work?
Top 10 Major Cities With the Worst Affordability for One-Bedroom Rentals
It’s not surprising that Canada’s top urban centres offer the worst affordability. Toronto ranks as the least affordable major city for prospective homebuyers to rent in, with residents spending a whopping 48.5 per cent of their $41,800 annual income on an average one-bedroom rent of $1,691. That certainly doesn’t leave much room for savings.
Vancouver is the second-worst, where renters allocate 46 per cent of their $44,200 annual income toward a $1,697 monthly rent. Halifax takes the third spot, with tenants spending 41 per cent of their $38,700 income on a $1,322 one-bedroom unit. These numbers highlight the significant challenges of saving for a home in these cities.
Related: 15 Money-Saving Tips for First-Time Homebuyers From Scott McGillivray
Top 10 Major Cities With the Fastest Home Deposit Savings Time
Now, this is where it starts to get interesting. Now that we know the best (and worst) cities for renting while saving up for a down payment, we can work out how long it takes to save for a down payment in each city. To do this, researchers applied the 50-30-20 rule to monthly income. The common budgeting rule suggests allocating 50 per cent of your income to needs, 30 per cent to wants, and 20 per cent to savings and debt repayment. This enabled researchers to estimate how long it would take prospective buyers to save up a 10 per cent down payment.
The study revealed that Quebec City is the best city for prospective homebuyers, offering the most affordable rent and the fastest path to saving for a home deposit. With an average annual income of $50,500 and a home price of $343,200, it takes just under three and a half years (40 months) to save for a 10 per cent deposit by allocating 20 per cent of monthly income. Regina ranks second, requiring about 42 months to save for a 10 per cent deposit, with an average income of $43,900 and a home price of $310,223. Winnipeg is third. Potential buyers need just over four years (49 months) to save 10 per cent for a $346,654 home with an average annual income of $42,300.
Related: New Mortgage Rules Every Homebuyer Should Know About
Top 10 Major Cities Where It Takes Longer to Save for a Home Deposit
And at the bottom end, Vancouver is the least favourable city for homebuyers, with high rental costs and the longest time required to save for a 10 per cent deposit. With an average annual income of $44,200 and a home price of $1,193,808, it would take approximately 162 months — around 13.5 years — to save if 20 per cent of monthly income is put away. That’s over a decade longer than in Quebec City!
Toronto ranks second, where residents earning $41,800 annually would need about 158.5 months (13 years and two months) to save for a 10 per cent deposit on a $1,104,592 property.
BC’s Lower Mainland (Vancouver’s metro area) follows as the third slowest, with an average income of $43,900 and an average house price of $1,128,008, requiring about 154 months, or nearly 12 years and ten months, to save for a deposit at the same rate.
Location makes a huge difference if you’re serious about saving for a home. “Deciding where to rent while saving for a home can be very challenging with rising rental prices,” explains Kris Bruynson, VP of Marketing and Product at Money.ca. “Although Vancouver and Toronto are appealing, each home buyer must weigh the cost versus savings when buying in these expensive cities. Is it worth spending 13 years saving up a down payment just to get on the property ladder in an expensive city?”
That’s definitely something to consider.
