David Peralty's Ramblings

Saving For a House

In the GTA, house prices have been going up by between 3% and 13% per year. An average home in the GTA is now $380,453.

Annie and I would love to buy a house, but we don’t currently have any savings, and are actually in a bit of debt. With our income being how it is currently, we could afford to pay a mortgage on a house around $300,000. In our careers, our income isn’t going to rise much above where it is today, and could go down if we have a child, as Annie takes maternity leave.

We would love to save for a house, but there seems to be a logic issue with doing so: we’d lose money by saving. Let me break down my thoughts, and feel free to correct me if I’m wrong.

Say we are interested in buying a $300,000 house. We decide to save up for a year, putting away $1000 per month and at the end of the year, we have $12,000. The house that was $300,000 is now between, $309,000 (3% increase) and $339,000 (13% increase). Let’s go with a lower figure of only a 5% increase in value, or $315,000. We’ve lost $3000 in market access/value by taking a year to save. To save $1000 per month is pretty aggressive as well, and so this divide only grows if the amount put away each month is anything less. And of course, we’d have to save this on top of paying rent on our apartment which is going to be $950 + utilities + storage unit. The value of our rent is approximately $190,000 worth or mortgage value.

If we were able to find a way to get into a house today, then in a year we will potentially be ahead of the game because we would be putting that money into the mortgage, and building equity, in part, through market value increases in the house.

This is an overly simplistic model, I know, but if houses continue to appreciate in value more than three percent, then I don’t know how we will ever save enough to compensate.