I had an interesting conversation with a woman this week. She expressed concern about her 26-year old son. She wondered with Real Estate prices rising, would he ever be able to buy a home for himself?
This is a concern shared by many parents.
Ten years ago, the average home in Durham Region was $317,000 and currently has risen to $968,138. That is an increase of $651,000! A young, first-time buyer simply cannot out-save the market.
So, what is a parent or a first-time buyer to do?
Let’s explore some of the “out of the box” ideas that might help get our young people into their own homes.
One idea comes from the "bank of mom and dad.”
Let’s assume a couple has a kid in their 20’s who is hoping to enter the housing market and needs help. The parents have lived in their home for a while and have paid it off. What would help would be a program that would be a partnership between the Government and a lender allowing the parents to access equity at a below-market rate, with the understanding it would be directed for use as a down-payment.
It might work like this – Parents who have a home worth $1,000,000 go to a lender and secure access to $100,000 of their equity by either a line of credit or a mortgage. With government backing, this would be insured and offered to the parents at below current market rates such as .75%. The loan to the parents would be $365/month to carry. With $100,000 as a down-payment, the son or daughter could easily buy a home in Durham Region.
I noticed a semi-detached home in the north end of Oshawa sold for $650,000 and with a $100,000 down-payment, the income needed to qualify to buy this home would be in the $96,000/ year range. This could be a single income of the combined income of a couple. Very doable.
This would be a way of unlocking equity from a home of a family of some means and helping someone young move up. I have seen countless situations where an elderly couple or single is living in a home larger than their needs, unwilling to move given how attached they are to their home and area. In many cases, the children end up with the home as part of their inheritance. This would be a way of unlocking inheritance early, and at the same time helping their kids.
Another out-of-the-box idea is more conventional than it is “out there.” In the USA it is standard to have the amortization of a mortgage 30 years, however, I have heard of amortizations lasting as long as 40 years. In the USA the rates do not change for the entire duration of a mortgage. This would mean (as the above example of a $550,000 mortgage) that had a 30-year amortization, the monthly payments would drop by $300.
One more financing idea would be to allow Buyers to purchase homes with no down-payment. A few years ago, several lenders offered “no money down” programs. This allowed the Buyer to borrow their down-payment of 5%, dealing with this as a loan. This allowed many Buyers who had enough funds to pay for the closing costs of the purchase of a home but did not have the actual down-payment.
We are in a housing crisis, and I am offering some “thought-stirring” ideas. I am certain if the government placed homeownership as a priority, they could create policies that would solve some of the issues we are facing.
I have offered some musings on the demand side of the issue, however, the better fix to the problem is to find ways to get more shovels in the ground, building more homes. If we were flooded with hundreds or thousands of new homes for sale, the bidding wars would cease, the selling prices would relax and the price increases would come back to a normal yearly increase, rather than monthly increases that seem like yearly jumps.
Honestly, the average detached home in Oshawa jumped $74,000 from August to September and the prices in Whitby increased $117,000. This my friends is not a normal, market.
If you have any questions about the information in this blog, or if you would like to share some thoughts on how we might make it easier for first-time buyers to enter the market, I can be reached at firstname.lastname@example.org or www.buyselllove.ca Or you can leave a comment… I love to see new ideas that might make entering the market easier.
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