House-hunting in Canada: Why $500K may not be enough money

Half a million dollars is a lot of money.But that's what a starter home in Toronto costs these days.

As first-time house hunters Ivette and Arturo (who wanted to withhold their last names) tour homes close to the city's downtown, theyhave discovered that the pickings are slim, even with a budget of $500,000.The most they can likely afford is a tiny bungalow.

Ivette and Arturo are in their early thirties and have been scrimping and saving for years to be able to afford an entry-level detached house in Toronto.

They say that they want to own a home so they can put down roots for their young son.

To get a competitive advantage, Ivette and Arturo are out looking for a home now, before the spring rush.

"We're house-hunting in the winter because we think there will be fewer people looking," says Ivette.

But competition for homes under half a million is stiffall year round. Ivette says that she and Arturo "don't have much wiggle room," meaning they aren't prepared to stray too far from the half-million-dollar mark.

But when they find a cutedetached house in a west-end neighbourhood they love for$499,000, Ivetteimmediately has another worry.

"It's too nice," she says, "and my biggest fear is that it will set off a bidding war."

'Ownership is still a favourable option'

Dana Senagama, a housing market analyst at the Canadian Mortgage and Housing Corporation (CMHC), predicts that houses will continue to be ahot commodity, especially in Toronto, Vancouver and Calgary, where the demand outpaces the supply of affordable homes.

"Ownership is still a favourable option with lending rates as they are now," says Senagama. She forecasts that there may be a levelling out in late 2015, as mortgage rates are expected to rise.

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But until then, "the market will remain strong," she says.

Senagama suggests that in some areas, the new Canadian population is driving the housing markets.

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"The immigrants who came two to three years ago are now your potential home buyers," she says. Although immigrants are driving much of the high demand, she says, almost everyone dreams of owning a property in the city.

Even if a house is a tear-down, Senagama says the land in Canada's largest markets will always retain its value.

Rising prices

Indeed, Arturo and Ivette see home ownership as an investment.

Arturo is imagining how prices will appreciate in neighbourhoods near new subway lines, and believes prices will only continue to rise regardless of interest rates because of the scarcity of land downtown.

Even so, this couple has a strict price ceiling and that cute west-end houseended up exceeding it, selling over asking at $509,499.

And so their hunt continues.