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Marilyn, who earns $110,000 per year in Toronto, has been trying to buy a house in Hamilton since March without success.
Marilyn describes herself as the “designated cheap person” in her group of friends because of how dedicated she is to her savings.
A 31-year-old communications worker we’ll call Marilyn remembers the dozens of road trips to visit extended family members in Grimsby, Ont., when she was a child. Her parents would take a bridge that overlooked Hamilton and a young Marilyn, with her nose pressed up against the backseat window, wasn’t impressed by the view of endless smokestacks surging from the city’s grungy industrial complexes.
“It’s so ugly and I’d be like: ‘Who would want to live there?'” Marilyn remembers saying. “It’s disgusting.”
More than 20 years later, she finally knows the answer to her rhetorical question.
Marilyn, who earns $110,000 per year in Toronto, has been trying to buy a house in Hamilton since March and, well, it’s clear she isn’t the only one with that goal in mind. According to the Realtors Association of Hamilton-Burlington, sales of residential homes were up more than 12 per cent in August when compared to the same time last year. Average prices, meanwhile, are now sitting at $694,690.
She’s bid on and lost five houses in five months.
In the research she conducted before the pandemic, she saw multiple homes selling for around $400,000, but her most recent experience is making her think those prices are no longer realistic. Marilyn eyed a house with a $469,000 price tag and having failed before, she pushed all her chips into the middle of the table with a $505,000 bid. (She is only pre-approved for a $500,000 mortgage, so she would have to pay anything above that amount in cash to go along with her intended five per cent down payment).
What Marilyn didn’t know was that she was competing with other high rollers and one in particular put down a $579,000 bid to win the home. She might be desperate to make the birthplace of Tim Hortons her own, but she just can’t compete with those numbers.
I don’t think I’ve ever seen anyone so anxious to move to Hamilton. She’s calling it her existential crisis. For Marilyn, it’s a bit more personal beyond the obvious cheaper real estate prices that are driving the millennial exodus from Toronto. Most of her family lives there now, including her mother. Her parents recently divorced and the split has left her mother without real estate to fall back on for retirement. That scenario terrifies her.
“I look at my mom and she worked hard her whole life but she kind of depended on my dad for everything … and now my mom is one of those people that’s going to have to work until she dies basically,” Marilyn said. “I want to get into the market because I want to know that I’ll have a house to live in that will be paid off by the time I’m in retirement.”
I asked Richardson GMP director of wealth management Yaron Orgil for help on deciding whether she can afford to enter the Hamilton real estate market.
First, let’s look into Marilyn’s spending. She describes herself as the “designated cheap person” in her group of friends because of how dedicated she is to her savings. She tries to save up close to 55 per cent of her $5,796 after-tax pay. In July, she only saved $1,766. The difference mostly came down to the second-half of a payment for a laptop ($800) she bought the month before.
Marilyn’s food expenses ($697) were also a bit high because she fancies herself to be a bit of a chef. At one point in the interview, my eyes admittedly watered when she explained how she could easily spend $100 on six different cheeses, green onions, rosemary and chives to “level up” her mac and cheese.
Still, Orgil didn’t have an issue with any of her spending and didn’t make any cuts to her budget. The more concerning part about Marilyn’s situation is that she’s a bit cash light for someone about to make a down payment. She only has a total of $67,300 in the bank.
“If she tries to stretch that too much, she’ll be in situation where she’s effectively asset rich and cash poor,” Orgil said. “You don’t want to spend all your money on the asset and not have anything left in the bank for a rainy day.”
Even if Marilyn goes as little as $25,000 over the $500,000 she’s been pre-approved for, she’d have to pay $51,250 upfront to purchase the home. Orgil then estimates she’d have to pay an additional $9,775 in taxes, fees and moving costs. That leaves little more than $6,200 in the bank.
After adding in an estimated $2,251 mortgage bill, $25 mortgage life insurance, $300 in utilities and $535 in property taxes, Orgil estimated that Marilyn could only save a maximum of $1,024 per month if the rest of her spending stays the same. Of that, $500 would go into a fund that she could tap in case the house needs repairs, leaving her with $524 for general savings.
If Marilyn’s hypothetical $525,000 home appreciates by 3.5 per cent each year for the next 25 years and her TFSA and RRSP each earn a yearly five per cent, she would have $1.6 million for retirement. Conversely, if she stayed in her current apartment and stuck to her July spending for the next 25 years, she’d have saved $1.5 million.
“There are many ways to get to the same finish line,” said Orgil.
The best solution, Orgil said, is still to buy a house for $500,000 and below. In 25 years, Marilyn would have $1.8 million in assets and cash. It might look impossible to buy one for that price now, but Orgil is preaching patience. He suspects the market might cool off into the winter when mortgage deferrals expire, giving Marilyn her chance. Mind you, while Marilyn can calmly put away $700 per month in that scenario, buying a car as most do when they leave Toronto would basically leave her living paycheque-to-paycheque, he warns.
Hearing that made Marilyn uncomfortable. For someone who’s routinely saved $3,000 per month, even putting away only $700 makes her queasy.
At the end of our interview, she tells me she’s preparing to bid on one more house and if she fails again, she says she’s done until the winter. Less than a month later, I checked in on her and the number of houses she’s lost is now at seven and climbing. She’s relentless, I’ll give her that.
Copyright Postmedia Network Inc., 2020