Undoubtedly, you’ve heard the reports for the past few years about how purchasing your first home has become exceedingly difficult. We entered what seemed to be a perfect storm, with prices skyrocketing because the inventory of homes for sale was low, and competition for purchases pushed prices to levels we had never seen before. Add to this the need to raise interest rates to battle inflation, and we had all the ingredients for making first-time buyers’ lives very difficult when it comes to purchasing a home. Really, it’s been a perfect storm of factors making it harder for first-time home buyers to enter the homeownership arena. Given that this is such an essential facet of the real estate market, let’s look at why it’s been so hard for potential buyers to enter the market, and then examine how incentives available to first-time buyers can help.
In This Blog:
- Why is it so Hard to Buy Your First Home Right Now?
- Options Available to Help First-Time Buyers
- Conclusion
Why is it so Hard to Buy Your First Home Right Now?
People looking to buy their first home are facing many challenges in today’s market. Here are a few reasons why it is so hard for first-time buyers to get into home ownership:
- The Affordability Factor: Simply put, people’s incomes have not grown as fast as home prices have. It’s estimated that average households need to spend over 60% of their income on home ownership in 2025. This far exceeds the standard amount mortgage lenders like to see when calculating their debt service ratios.
- The Down-Payment Factor: This is a significant issue facing first-time buyers. If you already own a home, the sale of that home typically provides the down payment for your next home. As a first-time buyer, you need to save for the down payment while still paying your current living expenses. Currently, the rules for a minimum down payment are that if you are buying a home priced at less than $500,000, you need a minimum down payment of 5% ($25,000). Suppose you are buying a home in the $500,000-$1.5 millionmillion range; then the rule changes. It is still 5% on the first $500,000 of the price, but then you add 10% on the portion above $500,000. In the GTA in 2024, the MLS average price is $1,110,000. With the downpayment rules in place today, someone needs to have $86,000 ($25,000 for the portion under $500,000 and $61,000 for the remainder). Again, remember that you are saving while also paying your current living expenses. A daunting task that shows how these rules make it difficult for first-time buyers to even get to the point where they can consider home ownership.
- Interest Rates: We all know what happened to interest rates over the past few years. After an extended period when rates were at historically low levels, we saw a rapid jump in prevailing interest rates, and with that, the cost of borrowing increased significantly. In January of 2021, you could get a discounted five-year mortgage for 1.39%; in October of 2023, that number was 5.49%. On a $500,000 mortgage, that means a monthly payment difference of $ 1,076. That means that simply because of the change in interest rates, the purchasing power you had over two years slipped significantly because of the affordability calculations.
- Supply Issues: We have also recently gone through a period when rental vacancies were very low and new home construction starts were slower than the market demanded. This created scarcity of available homes, and simple Econ 101 is that when supply is short, and demand is high, prices go up. We didn’t have enough homes for sale to meet the number of people looking for them.
Understanding the types of difficulties first-time homebuyers face makes it easier to see why people are having such a hard time getting into the housing market. Particularly given that factors like how fast your income grows or what the mortgage interest rate will be are not within the control of the potential first-time buyer.
Options Available to Help First-Time Buyers
Let’s take care of one thing right off the bat. That is defining what a ‘first-time home buyer’ is. For the plans laid out by the government, a first-time buyer is someone who:
Did not, at any time in the current calendar year before the withdrawal (except the 30 days immediately before the withdrawal) or at any time in the preceding four calendar years, live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that either you owned or jointly-owned, or your current spouse or common-law partner (at the time of the withdrawal) owned or jointly-owned. For example, if you are making a withdrawal on July 31, 2025, the period is from January 1, 2021, to June 30, 2025. (Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/definitions-home-buyer-s-plan.html)
What does this mean in less confusing terms? It means that to be a first-time buyer, neither you nor your spouse/common law partner has owned a home in the previous four years (always confirm that you qualify with an expert before proceeding, assuming you are, or are not, a ‘first-time buyer’). If that applies to you, there are options available to help you make your home ownership goal a reality. These include:
- The RRSP Home Buyers Plan: The HBP allows you to withdraw up to $60,000 from your RRSP to help with the expenses of buying your first home without paying income tax on the withdrawal. There is a requirement to repay the money on a fixed timetable, which could potentially trigger tax consequences in the future if you don’t make your annual repayment amount.
- The First Home Savings Account (FHSA): The FHSA is an account designed specifically for saving for your first home. Contributions are tax-deductible, and annual and lifetime limits are applicable. The main difference between this and the RRSP home buyers plan is that money that is taken out of the FHSA does not have any repayment rules, so you can pay with tax-free money when you make a withdrawal for a qualifying home. This is a newer program, so you can read more about it in a previous blog post.
- GST Rebates: Starting in 2025, the Canadian government is implementing a GST rebate for first-time home buyers who purchase a newly constructed home (whether from a builder, by building it themselves, or through shares in a cooperative housing corporation). Full details are here. You will receive a rebate equal to the GST on homes with a purchase price of up to $1 million. The rebate then phases out between a purchase price of $1 million and $1.5 million for the new home.
- Ontario Land Transfer Tax Rebate: If you are a first-time home buyer in Ontario, you are eligible for a rebate of up to $4000 (or slightly more in the City of Toronto) on the land transfer taxes associated with the purchase.
- Different Mortgage Rules: The Canadian government has also allowed first-time home buyers who purchase new builds to at a 30-year amortizations. This allows for the calculated monthly payments to be lower and, in turn, allows more first-time buyers to qualify for a mortgage. Again, are here on the Canada.ca webpage.
Given that the Canadian government recognizes the difficulties first-time home buyers have faced, as evidenced by the incentives and tax breaks it offers, you can see that everyone recognizes the importance of first-time home buyers to the overall economy.
Conclusion
First-time home buyers are an essential part of the real estate market. If you currently own a home and want to move, someone needs to buy it. Historically, this worked by first-time buyers entering the market, which was the first step in pushing everyone else up the ‘chain’. If first-time buyers can’t afford to get into the market, an essential cog in the wheel is missing, making the whole system less efficient. The issues facing first-time buyers these days are real. One of the best ways to navigate the pathway to homeownership as a first-time buyer is to have a great Mortgage Broker working side by side with you. The team at Strata Mortgages is just that. A team of expert advisors who will work with you to make sure that you understand all of your options and help guide you through the process as you become a first-time home owner. Reach out today to make an appointment and discuss how they can help you achieve your dream of owning your first house.
