Shifting lifestyles fuelling shifts in condo market, say experts
Janis Isaman makes no apologies for raising her six-year-old son in a two-bedroom condominium – and for eschewing the once-coveted trappings of a life in the suburbs.
“I definitely do not want a yard and I do not want anything to do with the suburban lifestyle,” says Isaman, 40, a business owner and single mother in Calgary.
The variety of urban life suits Isaman and her son, she says. They can walk to their favourite tea shops, restaurants and the local library. And the time that would otherwise be taken up cutting grass and raking leaves can instead be spent exploring the city together.
“We have a way more abundant lifestyle because I’m not shovelling the walk, I’m not taking care of the yard.”
Isaman is part of a growing contingent of Canadian families opting for the compact condo lifestyle over the white picket fence and the sprawling suburban McMansion as space runs out in Canada’s biggest cities and housing prices remain out of reach for many.
Wednesday’s latest tranche of census numbers doesn’t delve into the specific phenomenon of condo ownership or house prices; that’s for a later release scheduled for October. But it does illustrate a waning appetite for single-family dwellings among the millions of Canadians living in the country’s largest cities, many of whom are favouring the high-rise life.
Toronto and its ever-morphing Tetris skyline has the highest share of dwellings – nearly 30 per cent – in buildings of five or more storeys, Statistics Canada reports, followed by London, Ont., at 16.8 per cent, and Vancouver, at 16.7 per cent.
In 10 of Canada’s 35 so-called `census metropolitan areas,’ “single-detached houses represented less than half of occupied private dwellings in 2016,” the agency reported, including in Vancouver.
Indeed, in B.C., the share of single-detached houses fell from more than 60 per cent in the 1980s to just 44.1 per cent in 2016.
But it will take a shift in mindset for Canadians to embrace high density living, says Isaman. When her son was younger, she encountered a lot of pushback for raising a child in an apartment.
“It’s seen as a really big societal norm in Canada that you move to a house when you have a child,” she says. “I had to resist societal pressures that what I was doing was wrong. It seems weird to people because they think that kids need yards.”
There are a number of factors driving the condo craze, says Shaun Hildebrand of Urbanation, a Toronto-based condo research firm.
Part of it is rooted in necessity. Soaring prices for detached homes and tightened mortgage rules have caused much of the pent-up housing demand in the Greater Toronto Area to shift into the condo market.
“The result is that a greater proportion of households are now living in apartments compared to 10 years ago,” Hildebrand says.
And while much of the past demand for condos was from first-time buyers looking to dip their toes into the market, today that is not necessarily the case.
“Anecdotally, we’re learning that more families are deciding to live in condos, due to affordability constraints and lifestyle decisions.”
That has caused a shift in the kinds of units that developers are building, reversing a decades-long trend of increasingly tiny units.
Babak Eslahjou, a partner at Core Architects, says that over the past 20 or so years, the square footage of condos has been shrinking, with developers squeezing more bedrooms into less space. The living and dining areas have been combined into one, producing a generation of condo-dwellers who eat and live on the couch.
But now, that trend is beginning to shift.
“We’re being asked to design units that are 1,000 or 1,200 square feet,” says Eslahjou. “We really haven’t been asked that in a long time.”
It isn’t just young families making the shift to compact living, either: retirees are also downsizing, citing travel plans and the desire for less housework as motivating factors.
It’s been nearly a decade since Roz and Bob Holden traded their 3,500 square-foot house – complete with four bedrooms, a library and a tree-filled yard – for a two-bedroom condo, and the Toronto residents say they have no regrets.
“This is a much smaller space but it’s all we need,” says Bob. “We’re very comfortable here. We don’t feel squeezed in any way.”
Maintaining a large house simply didn’t make sense for the retired couple, now in their 70s, who spend much of their time travelling.
Living in a condo provides other perks too, such as a community of friends and an endless array of dining and entertainment options right outside their front door.
“We’re right on the subway line,” says Bob. “There are all sorts of restaurants and bars that we can walk to. For us it’s just the perfect lifestyle.”
4 Home-Buying Mistakes That Trip Up Unmarried Couples
First comes love, then comes ... a mortgage?! That’s right: Many couples are buying a home together before tying the knot. In fact, 1 in 4 homeowners said they purchased a home with their significant other before marriage, according to a 2016 survey by TD Bank. And that's presuming they end up tying the knot after all; many continue cohabiting without ever heading down the aisle.
But getting a home loan as an unmarried couple presents some unique financial challenges. For starters, you need to consider the possibility—slim though it might seem—that you might break up one day. Yes, these things happen.
"You need to look at the worst-case scenario,” says Ray Rodriguez, a New York sales manager at TD Bank. “It’s not a pleasant conversation, but you need to have it.”
After all, purchasing a home together is ultimately a business decision. You, as an individual, need to take steps to protect your investment. So, before buying a home with your significant other, make sure not to make these common mistakes.
Mistake No. 1: Not discussing your credit history
Even if you’re applying for a loan together, you’re going to be assessed by the mortgage lender as individuals. Married couples are sized up individually, too, but since they're hitched, they've likely had some in-depth money talks already. Unmarried couples may have put off this topic, but it's time to ask each other some tough questions—starting with your credit score.
Your credit score, of course, is primarily a measure of how well you've paid off past debts; you can get a free estimate of this number at Credit Karma. Even if your credit score is sterling, if your partner's is subpar, you as a couple could be seen as a lending liability.
"We use the lower score of the two individuals when qualifying the couple for a loan," says Rodriguez. And if someone's score isn't up to par, "this could mean you'll be required to make a higher down payment, or you get a worse interest rate, or you won't even qualify for a loan at all."
One potential solution is to have only the person with better credit apply for the loan. However, in doing so, you'll have to forfeit including your partner's salary in your assets, which might weaken your application.
“Most times you need both incomes to qualify for the mortgage,” says Keith Gumbinger, vice president at HSH.com, a mortgage information website.
The good news is, the sooner you know your partner's credit history, the sooner you'll get to fixing any issues before they throw a wrench in your home-buying plans.
Mistake No. 2: Planning who pays what with a hug and a kiss
Sorry, romantics: You can't just assume you and your significant other are just automatically in sync about who pays what, and this is particularly true if you're unwed and lack the legal protections marriage provides. So you’ll want to draw up a legally binding contract (with help from a real estate lawyer) that spells out the following parameters:
- What each person contributes to the down payment
- How much equity each person has
- What each party will pay, including the mortgage, taxes, utilities, and maintenance
Don't assume you have to go 50-50. "Many couples do 70-30 or even 80-20," says Gumbinger.
Most important, the agreement should include a provision as to what happens in the event that you two break up, says Debra Neiman, a certified financial planner and co-author of "Money Without Matrimony: An Unmarried Couple's Guide to Financial Security."
For example, which party has the right to buy the other one out? And if that buyout happens, how many appraisals would you need to determine the property's fair market value? Spelling these things out now will help you avoid disagreements later.
Mistake No. 3: Not considering your title options
Sure, you may live in this home together, but there are actually three ways that couples can "own" a property. Here's how to tell them apart and decide which way is right for you.
- Sole owner: The only time you’d want to put just one person on the title is if that person will retain 100% equity of the property—which might make sense if that person is exclusively shouldering the mortgage and other costs with owning the home.
- Joint tenants: If one person dies, the other automatically inherits the other's stake and owns the entire property. This “makes sense if you’re going in 50-50,” says Gumbinger. Many married couples opt for joint tenancy.
- Tenants in common: This stipulates that if one person dies, ownership will not automatically transfer to the other homeowner unless that person is named in the will. Instead, the deceased owner's heirs will inherit those shares. This can be a good choice if one or both partners have kids or family from a previous marriage to whom they want to pass on the property if they die.
Mistake No. 4: Making house payments separately
While married home buyers often join bank accounts, many unmarried couples are hesitant to commingle their finances. That's a valid concern, but if you're paying a mortgage and other home expenses together, having a joint account—into which you both contribute money from your separate accounts—can help streamline your house payments immensely.
After all, you can't write two separate checks for your monthly mortgage, so having one account just makes sense (and setting up automatic payments ensures they'll get paid).
MANAGE YOUR MONEY
Make your mortgage work for you
Interest Rate Type
You will have to choose between “fixed”, “variable” or “protected (or capped) variable”.
A fixed rate will not change for the term of the mortgage. This type carries a slightly higher rate but provides the peace of mind associated with knowing that interest costs will remain the same.
With a variable rate, the interest rate you pay will fluctuate with the rate of the market. Usually, this will not modify the overall amount of your mortgage payment, but rather change the portion of your monthly payment that goes towards interest costs or paying your mortgage (principal repayment). If interest rates go down, you end up repaying your mortgage faster. If they go up, more of the payment will go towards the interest and less towards repaying the mortgage. This option means you may have to be prepared to accept some risk and uncertainty.
A protected (or capped) variable rate is a mortgage with a variable interest rate that has a maximum rate determined in advance. Even if the market rate goes above the determined maximum rate, you will only have to pay up to that maximum.
Amortization refers to the length of time you choose to pay off your mortgage. Mortgages typically come in 25 year amortization periods. However, they can be as short as 15 years. Usually, the longer the amortization, the smaller the monthly payments. However, the longer the amortization, the higher the interest costs. Total interest costs can be reduced by making additional (lump sum) payments when possible.
You have the option of repaying your mortgage every month, twice a month, every two weeks or every week. You can also choose to accelerate your payments. This usually means one extra monthly payment per year.
The term of a mortgage is the length of time for which options are chosen and agreed upon, such as the interest rate. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.
“Open” or “Closed” Mortgage
An open mortgage allows you to pay off your mortgage in part or in full at any time without any penalties. You may also choose, at any time, to renegotiate the mortgage. This option provides more flexibility but comes with a higher interest rate. An open mortgage can be a good choice if you plan to sell your home in the near future or to make large additional payments.
A closed mortgage usually carries a lower interest rate but doesn’t offer the flexibility of an open mortgage. However, most lenders allow homeowners to make additional payments of a determined maximum amount without penalty.
Typically, most people will select a closed mortgage.
Tricks to Getting a Great Mortgage Rate
Getting a great rate on a mortgage is about a lot more than comparison shopping. It’s also about much more than just your credit score. In fact, the mortgage industry examines a number of factors to determine not only if you qualify for a mortgage, but also what interest rate you’ll pay.
There’s a lot at stake. Mortgage rates can vary by several percentage points depending on the factors we’ll look at below. The difference can mean a much higher or lower monthly payment and tens of thousands of dollars in interest payments over the life of the loan.
If you hope to get the best mortgage rates possible, you’ll need to make sure that you are well-qualified.
The best mortgage rates are available to borrowers who have credit scores of 700 or above. As your score goes lower, your interest rate goes up.
Employment and Income Stability
Mortgage lenders prefer candidates that can prove steady employment for at least the past two years. Lenders tend to be especially strict when it comes to self-employment income. They will require that you document your business income with income tax returns for the past two years.
Debt-to-income ratio – also called TDS – comes in two forms. The back-end ratio measures the total of all of your monthly minimum debt payments, plus your proposed new housing payment, divided by your stable monthly gross income. The front-end ratio focuses just on your housing costs, excluding all other debts. Historically, banks have wanted to see a front-end ratio of no more than 32% and a back-end ratio of no more than 40%. Depending on the type of mortgage and other factors, however, these ratios can go higher.