The increasingly narrow path to owning a house, without becoming house poor

Like many Calgarians, Joss Engen was looking for a bigger house for his growing family and finding few options within their budget.

They started looking in the $350,000 to $400,000 range. That was four years ago.

They did put in offers on four homes, he said, only to find they'd been outbid by people bringing all-cash offers, waiving conditions or offering as much as $50,000 over the asking price.

"It's kind of a dog-eat-dog world," he said.

After years of looking and saving, they were able increase their budget to the $450,000 to $500,000 range, and started to find more options that met their needs. But that's also when interest rates started to rise.

Ultimately, they bought a house in the deep southeast community of Cranston, where they moved in just last week. It's a bit further afield than the condo they used to rent near Mount Royal University and — at $521,000 and a 4.89-per-cent interest rate — a fair bit more than they were initially hoping to spend.

But they made a conscious decision to adjust their lifestyle in order to afford their new home.

"We basically have to cut all discretionary — well, not all discretionary — but basically all discretionary spending," he said.

For them, it's worth it to give their kids, aged 3 and 5, a larger home with a yard. They had also looked at renting a house but found the asking prices for rent to be even higher than what they figured their monthly costs would be for purchasing a similar home.

More and more Calgarians are finding themselves in similar situations as rents, house prices and interest rates all increase at the same time, while the number of available homes shrinks.

The reality of finding a place to live in the city has changed so much, so quickly, that people who haven't been actively looking might not recognize what it's like these days.

'Two solitudes'

It's a issue across the country, says Ron Butler, a longtime mortgage broker who's based in Toronto but watches trends in the real-estate market nationally.

Today, he doesn't mince words — using terms like "crisis" and "calamity" — when it comes to the situation prospective homebuyers are facing, especially in cities like Toronto and Vancouver but, increasingly, Calgary as well.

"We have this rapid rise in interest rates and we have crazy house prices," he said.

"Calgary has gotten crazier in the last 18 months, that's for sure."

He notes the surge in mortgage rates has come after a long period of rock-bottom interest and effectively free money, so the "calamity" might not be so obvious for those who have lived in the same home for years.

"There's kind of two solitudes in Canada," he said.

"There are people who bought a house 10, 15 years ago and their mortgage payments are ultra manageable. And there's ... the rest of the people, who are faced with either move-up buys, buying for the first time, rental rate increases —  and you'd be surprised how much the first group thinks zero about the second group."

The Bank of Canada, which continues to ratchet up lending rates in its ongoing battle with inflation, certainly thinks about the second group.

'Financial vulnerabilities'

Among the "indicators of financial vulnerabilities" that the bank tracks is the proportion of new mortgages in which the borrower is spending more than a quarter of their gross income on mortgage payments, alone.

That proportion has tripled among first-time homebuyers, growing from less than 13 per cent to nearly 44 per cent, in the span of a year.

Share of new mortgages in Canada with borrowers spending 25+% of their gross income on payments

Other data suggest a growing number of people are becoming house poor, devoting so much of their money to basic shelter costs that it leaves little — or nothing — left for everything else.

Mortgage delinquencies are not on the rise, but people tend to pay their mortgages first. Consumers are increasingly relying on credit, however, and missing payments on other types of loans, according to the credit monitoring agency Equifax Canada.

"At the end of last year, younger and lower income individuals were showing increased difficulty in making payments," Equifax analyst Rebecca Oakes said in a recent report.

"We are now starting to see more homeowners struggle as well, especially following mortgage renewals where payments have risen significantly."

Average monthly mortgage payments for first-time homebuyers in Alberta grew by 33 per cent in the past year, according to Equifax data.

Coupled with the broader effects of inflation, Butler says, surging interest rates have also created stress for families with variable-rate mortgages or those who have recently renewed.

"Some of these folks are having to borrow on their credit cards to get some key things done in their lives," he said.

"Because let's face it, when your car insurance comes up for renewal and you're used to paying it annually, and all of a sudden there's the bill and it's: 'How are we going to pay this? 'Cause my mortgage payment just went up $800.'"

'Bizarre feudalism'

In some of Canada's priciest real-estate markets, Butler says home ownership has almost become a type of "bizarre feudalism" in which the only way most people can afford to buy a home is if they receive an inheritance or other forms of financial support from family members.

"If your parents were well off and had a paid-for home that escalated greatly in value, then you too can have a home," he said. "But, by the way, all of you people whose parents didn't own a home, I guess your destiny is a lifetime of serfdom. You will never own a home."

Calgary, he notes, is not like that, but he worries about what the current situation will mean not just for people struggling to buy a home today, but for those same people decades from now, when they're trying to retire.

"Not having to make a mortgage payment when you're 60, 65 ... is an incredibly important piece of your future retirement planning," he said. "And if we make it impossible for young people to start, that is a profound societal disservice."

As for Engen, his family is loving their new house, even if it comes with some sacrifices.

It may mean longer commutes and less money to spend on restaurant meals and going out for entertainment, but it means more time having friends over for dinner and kids playing in the yard.

It's the right fit, for them, but they had to walk a narrow path to get there. And with home prices and interest rates still on the rise, they consider themselves lucky to have found what they were looking for, after four years of searching.