Dream of home ownership

The dream of home ownership is no longer pie-in-the sky, it's just up in the air. Literally.

The crux of a Re/Max Ontario-Atlantic Canada report released this week reveals Canadians have stopped dreaming of "white picket fences" and are now focused on "funky loft apartments."

But even the real estate company had to admit in its press release that this desire to live in condominiums is principally being driven by the fact that's all many people can afford the first time they dip their toes into the housing market.

"As one of the few affordable housing options available to first-time buyers, the concept is poised for dramatic growth in years to come," said Michael Polzler, the executive vice-president of the company.

The condo market has become part of the urban landscape with one in every three homes sold in the Greater Toronto Area falling into the category. Even in small centres like Halifax, the condo has become a significant chunk of the housing market.

As home ownership levels have climbed during this housing cycle, one of the reasons behind the surge has been the rise of the condo, says Craig Alexander, chief economist with TD Bank Financial Group.

"Condos, generally speaking, have a lower entry point than many other dwellings. Of course, that is generalizing. But if you are single and you are entering the housing market for the first time, a one-bedroom condo is often the key entry point," he says.

Mr. Alexander says the big question for prospective condo buyers is what will happen to prices as supply begins to surge. Toronto is building more high-rise condo units than any other city in North America, says research firm Urbanation Inc.

"Condos are at most risk if we see a cooling and softness in prices," he says, adding the that this segment of the housing market is going to reap the benefits from a change in demographics and attitude that has people wanting to live downtown. "We are seeing a renaissance in urban living, people want to live in the core."

He can't prove it statistically, but Mr. Alexander says it's become more common for children to go directly from their parents' home to buying a home, skipping over the renting stage that had become common for previous generations.

Part of the reason is affordability, but government policy has also made it easier to buy property and the condominium model is gaining from the ease of entry into the market. Government-backed mortgage insurance has made it possible to buy a home with as little as 5% down, compared to 10% in the early 1990s. At one point the down payment could be as little as 0% until the government cracked down two years ago.

Then there's the amortization period, which was stretched to 40 years from 25 years by the mortgage industry before it was scaled back to 35 years. But even at that length, it's much easier to qualify for a mortgage as your monthly payment goes down.

But if all you can afford is a condominium, should you make a condominium your first home?

"The condominium market is more volatile, it moves faster in both directions. But having said that, owning a principal residence is generally a good thing, as long as you can afford that," said Ted Rechtshaffen, a certified financial planner and chief executive of TriDelta Financial Partners "It's a good wealth builder because it's the only thing you can buy that is tax-free [in terms of capital gains]."

All of that is true, but a condominium should be like any investment. You have to consider whether you plan to hold it long term. If you do, then price gyrations up and down are not as important. The same holds true for transaction costs.

"It's like a stock portfolio. If there are lots of transactions, it adds costs. One of the reasons people think real estate is safe and stocks are not, is they hold real estate for 10 or 15 years," Mr. Rechtshaffen says. "If your plan is to be there for two years, there are a lot of transaction costs to cover."

The days of flipping a cond are long over, if they ever truly existed in this cycle. Once you figure land transfer costs, real estate commissions, lawyer fees and the cost of mortgage insurance, a condo is really like any other housing stock, just cheaper.

gmarr@nationalpost.com