Cost of living and retirement savings are barriers to homeownership

Anyone living in a big Canadian city such as Toronto knows the cost of living is high. Everything from basic needs, such as food, clothing and shelter to non-essentials are expensive, and according to a new survey they are also barriers to homeownership for young families.

Basic living costs biggest barrier

Conducted by Sotheby’s International Realty Canada and the Mustel Group, the survey found that “across Canada’s key metropolitan areas, young, urban families identified the cost of covering basic living expenses, such as rent, groceries and utilities, as their leading financial barrier to saving for homeownership.” One third of Canadians surveyed said this was their primary obstacle. In Toronto, the number was slightly higher with 35 per cent saying basic cost of living was keeping them from saving for and owning a home.But the barriers don’t stop there. Would-be homeowners say even non-essential lifestyle expenses such as dining out, travel, entertainment and fitness memberships were also preventing them from breaking into the real estate market.

Giving up a lot to get there

The report surveyed more than 1,700 families living in Canada's largest cities, including Toronto, Vancouver, Calgary and Montreal. It focused on families where the heads of the family are between the ages of 20 and 45. The majority, 51 per cent, said they were willing to minimize or reduce non-essential lifestyle spending to reach their real estate ownership goals. This includes cutting out dining out and travel. Many were also willing to give up clothing or technology purchases. To save, more than 37 per cent of families said they have reduced or eliminated health and fitness expenditures. A further 15 per cent say they are reducing if not eliminating car ownership.

Retirement on the back burner

The most concerning finding is one in five homeowners worried that prices will continue to rise are delaying saving for retirement. The implications of this can be significant. The shorter time you save for retirement the shorter time that money has to grow. A 2018 CBIC poll called “Am I saving enough to retire?” found the magic number Canadians needed to retire is $756,000 but they found as many as 90 per cent don’t have a retirement plan. The poll findings also show that almost a third of those nearing, or on the cusp of retirement aged 45 to 64, have nothing saved for their retirement. For those who have saved, the average value of their nest egg is $345,000 – only half as much CIBC says you need to retire.

What is the best decision?

Buying real estate should not come at the cost of ignoring other financial obligations. One easy solution is the look for properties that are less expensive. Condos are often the best choice for first-time homebuyers. If a more expensive property is what you desire, spending more time saving for your down payment will lower your payments when you finally purchase. The reason many young families are willing to sacrifice, is 78 per cent of those surveyed by Sotheby’s and the Mustel Group believe their home will either outperform or match the performance of their financial investments in the next five years. If the last 10 years is an example, that would be true, but it’s important to understand that as interest rates rise, so will the cost of borrowing and that will put downward pressure on home prices, too.The bottom line? Financial sacrifice is necessary when buying a home in most Canadian urban centres, so plan and prepare.Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.