2019 – Drive to survive

BY: JAY BRIJPAUL 

A recent survey revealed that one-third of home buyers prefer to move out of the city to smaller towns where home prices are affordable. The distance is a measure of affordability and buyers are spending at least an hour to commute. Josephine is one of those commuters who works at City Hall in Toronto. She bought a four-bedroom, detached home for $520,000 in Shelbourne. It takes her an hour and twenty minutes to commute. Homes in the 416 area with similar features are worth about 1.1 million and in the suburbs around $800,000.

Adding mortgage expense, property tax and commuting cost, it works out the same as if Josephine had bought in the GTA, but she cannot qualify for a higher mortgage. There is a trade-off in her case. Her elderly parents live with her and assist with the children. Her spouse found a job locally and assists with the household chores.

Many families are caught in the same predicament; moving to smaller towns where home prices are affordable. Commuting time in some cases is about fifteen hours per week. Factor one’s hourly rate and that’s an additional loss. For many, the trade-off is that they can enjoy a larger home with much more amenities at a cheaper price. Josephine really doesn’t mind because it gives her a break from the busy city. The roads are less congested, and the town moves at a much slower pace.

Commuting is not only exhausting, it is expensive. Josephine carpooled with four others and drove only one day each week. Small town living is becoming more popular, especially among those who are self-employed, retired or work from home.  A client sold his condo in Toronto for $375,000. He bought a home in Thunder Bay for $125,000 and another one in Arizona for $75,000. He spends his winters in Arizona and summers in Thunder Bay. He is employed as an underwriter and works from home. All he needs is internet access. The small towns are good for retirement as well. Many sell their homes in GTA and move to smaller towns where the pace is slower, and the home prices are affordable.

I recently relocated a family from London to Rexdale. One spouse is a truck driver and the other works from home. Their jobs gave them the flexibility to live out of town. However, two of the children graduated from high school and are now attending UofT. Commuting is out of the question and it is expensive for the family to pay for accommodation. They settled for a much smaller home in Rexdale but the children can commute to university.

The qualifying process for home ownership is based on a formula where 32% of the gross income can be used for mortgage and property tax every year and 42% to carry all debts. With the stress test, where the qualifying rate is 2% above the current rate, buyers are qualifying for less mortgage. If the government removes the stress test qualifier, buyers can qualify for more. Another option is to increase the amortization, the number of years it takes to pay off the mortgage, from 25 years to 50 years. This would drastically reduce the monthly payments but with lower mortgage payments, more buyers can afford, demand will increase, pushing the prices even higher. It is a delicate balance.

Affordability is the key when comes to homeownership and buyers are trading the cost to commute for affordability. If you are planning on buying in a small town, then do your research. It should be a family decision taking everything into consideration. Home ownership is becoming more elusive for many and the only way out is to drive to survive the high cost in the city.