GTA First-Time Buyers: Should You Save Up for a Single-Family Home or Invest in a Condo Now?

For a first-time home buyer, everything is new. The emotions, the mortgage options, the property choices and so much more! Investing in a property is likely one of the largest purchases you will ever make, and as a first-time home buyer, the pressure is even more intense when it comes to decision-making.  And, if you’re a first-time buyer in the GTA, you’re likely dealing with the lightening fast, hot market in addition to the regular checklist.

A common question first-time home buyers ask themselves: Should I save up for a single-family home or invest in a condo now to break into the market sooner? Well, it’s helpful if you first understand down payment options, average prices, and affordability concerns when making the choice.

The age-old question: should you save up for a 20% down payment?

Thirty years ago, saving up 20% of the purchase price on a $200,000 home was feasible. However, home prices have skyrocketed while wages have not followed suit. According to Statistics Canada, from 1981 to 2011, average hourly wages increased by 17% among men aged 45 to 54. This number increased by only 1% among men aged 25 to 34. Hourly wages of women aged 45 to 54 grew by 33%, more than twice the 14% rate observed for younger women.1

To put these numbers into perspective, in October 2021 alone, the average price of a home in the GTA increased by 19% year over year to $1,155,345 2 Which means the 20% down payment increased from around $193,000 to $230,000 in one year, or an additional $3,100 a month in savings to make up the difference. Some first-time buyers might find it difficult to catch up to this runaway train.

Putting down 20% of the purchase price means you don’t have to pay mortgage insurance through the Canadian Housing and Mortgage Corporation (CHMC). 3 Mortgage insurance can cost between 0.5% and 5% of the loan amount per year. If you borrow $150,000 and your premium is 1%, you will pay $1,500 dollars of mortgage insurance per year. However, if prices continue to increase at the current pace, you may be priced out of your ideal market before you save the funds to avoid the mortgage insurance.

The beauty of choosing between a condo and a single-family home is having the freedom to align your priorities. Condos give buyers the ability to enter the market on a smaller purchase price, and as a result, a smaller down payment. And with the average price of condos in the GTA currently at $703,698 4, that makes the 20% down payment more manageable and also means you’re more likely to find a unit under the million-dollar mark, which would allow you to take advantage for the first-time buyer’s incentives like putting down 5% on the purchase up to $500,000 and 10% thereafter. 5

The Numbers

How much have condos increased in value in the last five years in the GTA?

In October 2016, the average price for a condo in the GTA was $429,407.6 Five years later, the average price for a condo is $703,698,7 an increase of 64%.

How much have single-family homes increased in value in the last five years in the GTA?

In October 2016, the average price for a single-family home was $1,034,077.8 Five years later, the average price for a single-family home is $1,540,432, 9 an increase of 48%.

What’s the average amount an individual can save each year towards a down payment?

Let’s consider this scenario – if a first-time buyer commits to saving 10% of their after-tax salary per month towards their down payment, it will take a person making $200,000 annually saving for 15 years, to save up a 20% down payment on the current average price of a single-family home in the GTA. According to Statistics Canada, the 2019 median salary for Canadians aged between 24-55 was $60,300.10

What you save is outpaced by what you can earn by investing earlier

For both home types, the amount that you can save will likely be outpaced by the earnings achieved in the same timeframe from a home investment. In five years, putting away 10% of the average $60,000 income in Canada would net you $30,000 in savings. If you bought a condo during the same five-year period from 2016 to 2021, there would’ve been potential to build $200,000+ equity in your condo.

Affordability: ongoing costs of both home types

In addition to the potential return on investment, another factor to consider are the ongoing costs associated with both home types.

Insurance costs: condo vs. single-family home

Insurance costs for condos are typically lower than a house considering they are smaller and usually have fewer personal belongings. In addition, the condo corporation insures portions of the building like the roof, water system, or garbage chute.

Expect to pay $30-50 per month for condo insurance. 11 On the other hand, single-family home insurance typically ranges from $100-150 a month. 12

Water and garbage: condo vs. single-family home

When you own a single-family home, you must pay for water and may need to pay for garbage disposal. Most Canadian municipalities have a limit to how much garbage a household can dispose of on garbage day and others charge a fee per bag or a flat fee. This usually amounts to $150-250 a year per household. 13 The average cost of water for a household per month in Ontario is $58, so expect between $200-300 for garbage and water.

On the other hand, these fees are usually included in your maintenance fees for a condo. When purchasing a condo, you can see the breakdown of your fees. Based on the size of the building and age garbage and water prices could vary.

Maintenance: condo vs. single-family home

There’s a lot of costs that come with maintaining a single-family home. A homeowner can expect an annual cost of anywhere between 1% and 5% of the cost of the home to maintain the property. This includes cleaning eavestroughs, ducts, furnace servicing, plumbers, landscaping costs, and more.

For condos, most property maintenance is generally included in the condo fees. However, some condos have maintenance fees as high as $900 per month. Remember, these are fees to maintain amenities that you might not use.

 

Final thoughts

Simply put, a condo is generally going to require a smaller initial investment than a single-family home.  In addition, the return on investment by getting into a condo faster might exceed what you’re able to save up in the same time towards a single-family home.

Ultimately it comes down to your current finances and your financial goals to help shape the route you take!

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On December 1, 2021, Purplebricks rebranded to FairSquare Group Realty. Blog articles published before this date were created under the Purplebricks brand but remain the property of FairSquare Group Realty.

In January 2019, ComFree Commonsense Network Brokerage rebranded to Purplebricks.