It’s no secret that it’s more expensive than ever to own a home in Canada. In fact, the average price of a home today is over $400,000 and in cities like Toronto and Vancouver it’s well over a million dollars. With prices like that how can a young person ever afford to own a home? My guest this week is Alyssa Davies, a content specialist at zillow.ca, Canada’s largest digital real estate brokerage. And she is the founder of Mixed Up Money. She joins us to discuss the challenges faced by people entering the housing market and shares some ideas to help make the home ownership dream a reality.

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Tom: Hi Alyssa, welcome to the Maple Money Show.

Alyssa: Hi. Thanks for having me.

Tom: I know you’ve been working for Zillow for a little while now. A year probably?

Alyssa: Just over a year.

Tom: Okay. I don’t know a whole lot about buying a house. I was joking with you before the show that my only expertise in buying a house is that I bought a house. But it doesn’t give me a whole lot more insight into it than that.

Alyssa: Well, you know more about it than a lot of people do then.

Tom: Fair enough. I certainly want to walk through this with you because I think I got lucky when I bought my first house around 2001 or 2002. It was just a little townhouse but at least it got me in the market. What are some of the issues younger people are having nowadays when they’re looking at buying a house?

Alyssa: I think right now it’s more just the cost of buying a house in general. The average home in Canada is around $450,000. In more major cities like Vancouver or Toronto we have sold home data at Zillow and it rings in around $1.7 million. It’s absolutely insane. To put 10 percent down on one of those homes you need $170,000. But the average income for a Canadian (that’s a millennial) is around $66,000. It’s tough to save that much money in a short amount of time.

Tom: I have to admit, I cannot imagine living in Vancouver or Toronto. Even now that I’ve paid off a good chunk of my house, I could flip that into a new down payment, but why? Just to cover that, actually, why are these areas more expensive? Is that just where everybody wants to be? What’s driving these prices up?

Alyssa: Well, the market in Vancouver and Toronto has been pretty inflated for awhile. The prices have been expensive for a few years now. Actually, they just released the data for what types of markets ran across Canada and for the first time (in forever) Vancouver is in a buyer’s market. So maybe this year is your year if you have that kind of money sitting around. I think it’s just because of their popularity. Major cities are beautiful places to live. I love visiting them. I can’t afford to live there. But if I could, I would.

Tom: I’ve got to assume some of it is that they just can’t grow any further. Here in Alberta where you and I both are, we just keep sprawling across the prairies as they need more real estate. I guess you can’t really get any more when you’re when you’re in those cities.

Alyssa: For sure. I think the interesting part is people are recommended to save 20 percent of their income towards saving money for retirement and for emergencies. Let’s say you already have an emergency fund and all that, if you are saving 5 percent of that $60,000 a year income, it’s going to take you 12 years to save for a down payment. And that’s only if you have it somewhere where there’s a decent interest rate.

Tom: Why is it recommended that we do 20 percent?

Alyssa: Those are just our little pie charts. You haven’t seen them? They’re everywhere. If you’re earning a certain amount of income they want you to spend around 40 percent on housing and your living expenses, and 20 percent on your savings because you need 10 to 15 percent of your money to go towards retirement so you have enough money saved when you decide to retire. It’s all of those little things. There’s specific places that all of your money needs to go.

Tom: What’s the minimum you can put down? I think when I first got my house I believe I only put down 5 percent. Is that still the case?

Alyssa: Yes, the minimum is still 5 percent down. It depends on the type of home you buy, the price of the home. If the purchase price is $500,000 or less you can put 5 percent down which is probably what your townhouse cost back then. If the purchase price is $500,000 to just under a million dollars, you have to put 5 percent down on the first $500,000 of the property, then you can put 10 percent of the purchase price above $500,000. And the last one is a million dollars and up where you have to put 20 percent down if your property is worth over a million dollars.

Tom: So in these big cities with the million dollar plus houses I guess that’s becoming more of a real thing where, back in the day, it wouldn’t have even been imagined. I know when I put down 5 percent I did get hit with the CMHC fees which were kind of baked in where you don’t really notice it. But it is an additional expense that certainly makes that 20 percent worthwhile.

Alyssa: Actually, awhile ago I did research into what is the best percent to put down on a home. And we found it wasn’t even 20 percent. Sure, you’ll skip the CMHC fees but you’re actually seen as more of a risk in a lender’s eyes because they don’t have that mortgage insurance. The sweet spot is actually 10 percent. If you can muscle up 10 percent of a down payment that’s a really great place to start.

Tom: That’s a good point. I never thought about that from the bank’s perspective. We should point out; CMHC fees are basically insurance for the bank. It doesn’t cover you in any way.

Alyssa: Yeah, you still need home insurance.

Tom: It’s completely just us paying for the bank to have insurance on our debt. There’s actually less risk for them to take someone on at a 10 percent down payment. I’ve got to admit, when I paid those fees… Maybe I was just not smart about the whole thing at the time but it didn’t seem like it was terrible. And I believe they’re tiered as well. The 10 percent down is going to be different than 5 percent down in the amount you pay in those fees.

Alyssa: Yes, for sure. If you go to CMHC’s website they have a calculator that can tell you exactly how much you’d be paying.

Tom: Perfect. So it’s going to take 12 years on average if someone wants to save for the 20 percent down. One big question is what do we do about this?

Alyssa: Well, we want to do something because Millennials are already aged 25 to 34 which means we likely have a family, on the way to having a family or we’re ready to make an investment with the money that we’ve been working to get. So we want to do it a little bit faster. That was an issue for me. I wanted to buy a home at 25 years old. I knew I needed to start saving. And, of course, there were other things that came up because I was 25. So, for the past three years I have been saving as much as I possibly can. I managed to come up with a $50,000 down payment in three years, so it is possible. It’s not fun. But there are some ways that you can do that.

Tom: What was your situation before this? Were you renting an apartment at the same time as well as having to save up?

Alyssa: Yes. Actually, my husband and I moved to Fort McMurray– not for the typical reason that any Albertan or a Canadian may though. We were moving there because he got an opportunity at the college so it’s a bit different. But yeah, we were renting a townhouse. It was $1,800 a month. That wasn’t bad. Everything was included so that was really nice. We found the most affordable place we could find to fit us and our daughter. From there I started to do everything I possibly could to earn an income that was well above what it should have been.

Tom: So, whether it’s your personal story or just on average, how can someone start to save this up? What steps do they take to go from zero to $50,000?

Alyssa: First, we really took a good hard look at the numbers– what we actually needed to make this dream a reality. We looked at the neighborhoods we knew we’d want to buy in and which entry level markets were the best option so we weren’t being a little bit too excessive with our budget. And from there we got into the actual numbers that would get us to our goal. Once we had that number it was kind of mapping out a timeline, “Okay, we have three years until we’re moving back to the city that we want to live in. And in that time we need to save this much money per month. How are we going to do that?” Then we sat down and went over some things and one of the first things was to lower our expenses. Or you live like you already own a home. Let’s say you already have $1,800 a month rent. You just act as if you have a mortgage that’s double that, and you try and put that much extra away for your down payment fund. But the easiest thing to do, obviously, is lower your expenses. I don’t mean to stop buying coffee or going to the movies or going for dinner on Friday nights because that is not how I like to live my life. I mean, lower your fixed expenses. See if you can find a cheaper place to live. Make sure that you can cut your phone bill back. Maybe it doesn’t need to be $200. Maybe you don’t need the latest iPhone. Those are the bigger expenses that can actually affect your saving capability. From there we tried to figure out how we could increase our income now that we had lowered our expenses. I know we’ve all heard of side-hustles. And I think we’re all sick of hearing about side-hustles. But that is actually how we did it. I tried to increase my main income. But because that wasn’t an option because I was in a new role, I found other opportunities. I worked as a freelance writer. I worked as a marketing contractor, a sports statistician at college sports games. I did anything I possibly could (that I could squeeze into my schedule) to earn an extra income.

Tom: I’m guilty of talking way too much about side-hustles but I think they’re rather necessary now. Just like it’s often very necessary to have dual incomes. I don’t know if you can speak on this or if you have any stats or anything, but how many single people are able to buy a house nowadays?

Alyssa: Oh, gosh. It’s not very many. Not very many at all.

Tom: Yeah, I can imagine. Even on an average, you said $450,000. That’s a lot when you’re only making one income in a household and that’s it.

Alyssa: Actually, I think there is a statistic about Millennials and how, on average, all of them have four to six jobs which is probably very true. One of the best tips I can give someone is if they’re wanting to do a side-hustle and they’re trying to save for a really large goal, I’ve actually negotiated with people I’m working with and clients to have them pay me in a lump sum at the end of my contract.

Tom: How come?

Alyssa: I did that because, obviously, you get dinged in taxes. One of the reasons I really liked that is because once you get that paycheck, you put it right into your savings account. I think a big motivator for people– actually seeing their money go into that account and thinking to themselves, “Wow, I can actually accomplish this. I just had $500 and now I have $1,500 or $15, 000,” depending on the size of contract. But doing that actually made me feel like I was achieving my goal a lot faster than if I was putting away $200 from every paycheck into an account.

Tom: Yeah, I guess it’s no different with people in corporate jobs. You get that annual bonus and you can actually do something with it. It doesn’t just get buried in the usual biweekly payment.

Alyssa: Exactly.

Tom: So, you’ve bought a house. I have a house. I think that puts us on the pro home-ownership side. What about those Millennials that say they’re not going to buy a house. They’re just going to rent for the rest of their lives. And if there is a little bit of additional money, they’re just going to invest that. Is that a good way to go? What are your thoughts on that?

Alyssa: If you don’t want to buy a home, that’s really your prerogative and I don’t see any problem with it. If you can manage to live your life renting forever, I would. If I didn’t have a kid I actually probably would never have bought a home. But it’s totally a lifestyle buy. It’s kind of an emotional buy for a lot of people. As much as it can be a good investment, I don’t think it’s always the best investment unless you’re really into the entire idea of having permanence and a place you can call your own. A place to set down roots and actually build a life. I totally understand that rent versus buy argument. And in my mind it’s always lifestyle. The only way housing will ever win is if it’s going to fit your lifestyle.

Tom: Yeah, I looked into this when we moved last time and I couldn’t make the math work. I get if you can live somewhere and the rent is cheaper. But in my case, the mortgage was actually cheaper than renting a similar place.

Alyssa: I think that’s a really big thing too. A lot of people think that a home isn’t a good investment but it is a really good investment if you maintain that home and you’re constantly keeping on top of all of the responsibilities you have as a homeowner because if you’re always taking care of your asset, it’s going to grow.

Tom: Then there is the whole benefit of it being forced savings. By the time you retire, hopefully your house is paid off and you’re set up to live there during retirement, or downsize at that point. You’ve got the options.

Alyssa: Absolutely. And you build equity and it’s a great way to make a home for yourself. The investing side of it is actually one of the ways I was able to buy a home. Investing is absolutely the way to go whether you buy a home or not. That should be something that’s a part of your financial life. But if you invest into a diverse portfolio and save your down payment fund in the right account, that’s a huge way to ensure you’re going to have enough money saved.

Tom: What did you do to save up yours? Was it in an ETF or a savings account? How did you do this?

Alyssa: I think for a down payment fund, a really good way to approach it is the 5-year rule. If you plan to purchase home in the next 5 years you should have your money easily accessible. You don’t want to be doing anything risky but you still want to make sure you’re getting the highest possible return. Saving it in a high-interest savings account that has a good rate of return, GICs, mutual funds and just places that are safe, conservative, you’re still able to grow that because your timeline really does dictate where you can save your down payment fund. Because I did plan to buy a home when I was way younger, I did have my money saved in ETFs with Wealthsimple. And it was a great, great way for me to earn a little bit more without doing anything extra.

Tom: Yeah. I think Wealthsimple and robo advisors in general are such an easy way to truly invest money because they’re very millennial-friendly. You just get the app and you’re saving. Whereas, when I started there were the hassles of getting into certain index funds or you’re going to buy ETFs through a stock broker. It was a lot tougher than getting set up with a robo advisor.

Alyssa: Yeah, for sure. Investing is totally based on your personal risk tolerance; are you going to be able to handle a major debt; what’s going to happen when there’s a major runoff? You can’t anticipate those fluctuations. It’s just also good to reflect and make sure whatever happens with that money (if it is your down payment fund) you’re going to be okay if it doesn’t go exactly how you imagined.

Tom: I had saved up money in an RSP and pulled it out in the Home Buyers Plan. This was for our house purchase in 2009. I hadn’t used the Home Buyers Plan for the townhouse but I didn’t have an RSP at the time. The townhouse came first. With the house purchase, I pulled the money out just before the market really started to drop. I think I also admitted this before. It wasn’t some great guru decision. It was just dumb luck that we pulled the money out through the Home Buyers Plan just in time. If we had bought a house 6 months later it would seriously affected our down payment at the time.

Alyssa: That is another really important thing you mentioned there. Another great way to take advantage of saving for a down payment is taking consideration to those down payment assistance programs like the Home Buyers Plan, first time homebuyers tax credit, land transfer tax rebate… There’s lots of stuff out there that can help you.

Tom: Now if we can go back to the beginning where you mentioned this idea that it’s going to take 12 years if someone’s also saving for retirement. In my case, I didn’t do that. What are your thoughts on that? Should you save for both at the same time or maybe go all-in on the down payment first? How do you weigh in on that?

Alyssa: It’s actually funny. I stopped saving for retirement. People will criticize me for this (I know) but I stopped saving for retirement for an entire year so I could just focus on saving for a down payment. We actually did a study at Zillow about whether or not Millennials were doing that and a ridiculous amount of Millennials were prioritizing saving for a down payment over their retirement. It’s extremely common.

Tom: I can’t say it surprises me. That’s what I did. But it wasn’t because I was making the decision between the two. It was because I wasn’t even thinking about saving for retirement in my 20s.

Alyssa: That’s totally so common.

Tom: It really wasn’t like weighing the two, like you and I would nowadays. But back then I just wanted a house so that’s what I saved up for.

Alyssa: Saving for a down payment was the number one priority for 75 percent (I believe) of Millennials. Then it was debt repayment. Then it was an emergency fund. And then, retirement savings.

Tom: Debt repayments is a tough one too. That one I would want to prioritize first just because if you’re paying that 10 to 20 percent interest it’s such a loss.

Alyssa: Totally. I think you should do whatever is best for your financial situation. I think anything at all going towards your retirement is important. Anything at all. I wouldn’t recommend what I did to anyone. But I also just had a baby and so it wasn’t an option for me to do both. I just looked at the long-term and what was more important for me in the moment which was getting a place for me and my family to live.

Tom: You can only ever know which choice you make is right or wrong by looking back at it afterwards. It like, how did the stock market or real estate market do? Which one should you have had your money in? There’s nothing you can actually predict now. Even the so-called “experts” can’t really tell you the right answer between those two.

Alyssa: No, when it comes to money, it’s anyone’s best guess. And we hope that it’s an educated guess.

Tom: And that’s why I kind of like the way you presented this; you do save for retirement and the down payment at the same time because you can’t guess which the better choice is. But you can certainly hedge your bets by just doing both.

Alyssa: And hopefully, by earning that extra income if you do decide to side-hustle you can still do exactly what you were doing with your original budget because now you have this extra money that all just goes towards that other savings goal. Ideally, that would be the way to do it. But that obviously isn’t a perfect solution for everyone.

Tom: I totally believe in doing side-hustles but there it’s hard to convince some people of that. They’re always too busy watching TV and such. But that aside, it’s hard to convince someone that they could be doing that to make extra money. Can you go into your side-hustles a bit? You’ve listed them off but can you roughly tell us how much this helped?

Alyssa: Oh, a massive amount. I had a contract doing social media for a college sports department that I was able to earn a quarter of my annual income doing on the side. And another contract in sports marketing where I was able to earn another quarter. So I basically had an additional 50 percent of my income coming in just from side-hustling.

Tom: I totally get that. When it’s extra money, you can actually make better decisions. You’re sort of looking at it from outside of the usual, “This is what we make and this is how we spend it.”

Alyssa: I’m not going to go ahead and say that and know it didn’t cost me any extra time. It was a lot of work. But it’s about how much you want something.

Tom: You mentioned the idea of cutting back on the big things and I totally agree with that too. Something like paying less in rent is a lot more helpful than skipping your to latte, avocado toast or whatever. What were some of the steps you took beyond the rent to cut down the expenses?

Alyssa: Well, this sounds so silly but my dad and I always joke about it; the best way to save money is to be antisocial. Because we moved to a new city I didn’t have any friends there. I didn’t have a community yet so I had a lot of extra time to work. And rather than spend money going and doing things I normally would do, I stayed home. We made all of our meals at home. We had the occasional fun night out. But to be honest, the most extreme part of my budget was by not having a community of people around me encouraging me to go out and spend money. That was a personal thing for me because since I moved back home– I’ve been here for a week and I’ve already done more than I did in the two years I lived in Fort McMurray.

Tom: So not having friends is basically…

Alyssa: That is the best way you can save money.

Tom: Similar to that that, one of the most expensive things for me was being in a corporate job. It was always, “Let’s go out for lunch. Let’s go out for drinks on Friday after work…” It became this constant, “Now that we’re done working, let’s go spend our money.” It was very hard to get around that and it probably set me back a bit.

Alyssa: Actually, that obviously wasn’t the only way to save money but were living in a different condo building before we moved toward townhouse. It was about the same in rent but we were paying for utilities and all that kind of stuff on top of it. Whereas, when we moved into the townhouse everything was included in the rent which is such an easy way to manage your money. You don’t have to worry about those additional bills and they’re always fixed. You’re never going to have to worry that your internet bill going up because you went over your data or something small like that. But it’s just not having to worry about any changes in your budget because it’s always the same.

Tom: I like that point because if someone’s looking at somewhere to rent they might not be looking at those details in the ad. They might just be looking at the dollars they see instead of taking that whole picture in. What are some tips you have for someone, maybe a young millennial who hasn’t started yet? Beyond what we’ve covered so far, is there anything we’re missing here?

Alyssa: I think the most important thing is being honest with yourself in what type of home you can afford to buy. Don’t feel bad if you can’t buy a single-family detached home the first time you try to enter the market, especially if you’re single and you’re trying to earn that down payment fund on your own. It just might not be an option. Also, just look around and see which types of homes are better for you; what type of property are you comfortable living in, a townhouse or a condo. Do you need it to be detached? Look at the homeowner’s association fees attached to those other property types. And you should also look at all the maintenance you might have to do on your own if you buy attached property. And just be honest with what you can actually afford each month because once you own a home it’s a lot more expensive than renting. I think that’s why people always try to argue that renting is better. There are a lot of added expenses that people forget to consider when they go to buy a home. Just make sure you really know what you can afford. And don’t pinch yourself if you can’t get a 20 percent down payment. Like I said, 10 percent is awesome. I personally wouldn’t do less than that. But if that’s how you need to break into the market and you really are interested in owning a home, then do what you can do.

Tom: When you’re saving up this money, it’s not like you can time the market but you can certainly get a good idea whether it’s 7 percent or 12 percent– that kind of thing. Or when the right time to buy might be you might be where you’re able to get in it at a decent price.

Alyssa: That’s another good point; looking at the market and keeping an eye on the market. I wasn’t going to buy a home this year, but guess what, the market was awesome, we got the opportunity to move home and I said, ” Oh, this is the best time to buy. We have to make it work no matter what,” because you don’t always get to choose. But if you have your eye on the market and you kind of have a good idea of what’s going on, you’ll be able to get in at the right time for you.

Tom: Yeah. My personal psychology tip to add to that is, watch the market when you’re buying. Once you buy, don’t look because you’re not going to pick the perfect low in the market. Watching a similar house next to you go on sale for $30,000 less than you bought yours isn’t helpful. It’s all on paper at that point. Once you’ve already moved in, it’s done. You’ve just got to move on with your choice.

Alyssa: One of the best things a real estate agent told me is that people are always waiting for the market to hit its lowest point, but no one will ever know what the lowest point is until the next day when the prices start to rise again.

Tom: Yes, exactly. So this has been great. Can you tell people where they can find? Both your own blog and with Zillow?

Alyssa: I actually write a monthly column over at Zillow about how to buy your first home. It’s zillow.ca/news. You can find lots of great real estate content there if you’re interested in learning more. And personally, you can find me on Twitter and Instagram at mixedupmoney. I love to talk everything finance.

Tom: Thanks for being on the show.

Alyssa: Thanks so much for having me.

Thanks Alyssa, for tips on getting into the Canadian housing market. You can find the show notes for this episode at maplemoney.com/alyssadavis. If you enjoy listening to the Maple Money Show on iTunes (or I guess it’s now Apple podcasts) please take a moment to give us a rating and review? I take time to read all of the reviews and would love to get your feedback. Thanks for listening and we’ll see you next week.