“Aspiring to own a home is part of our culture. It is also a way to build wealth for the future,” says Bank of Canada Governor Stephen Poloz. Home ownership is a financial goal for many Canadians, but in 2018, buying a home can feel like an elusive dream.

The 2018 housing market: New stress-test rules

The federal and several provincial governments recently introduced new home-buying legislation that makes purchasing a home more challenging, particularly for first-time buyers. Potential homebuyers with a down payment of less than 20% must meet a series of new criteria, referred to as the stress test. A recent study by Re/Max found that one in three would-be Canadian homebuyers are passing on buying a home because of the new stress-test rules.

Interest rate hikes

Interest rates are also top of mind for homebuyers and homeowners. In July, the Bank of Canada raised its key lending rate, known as the overnight interest rate, to 1.5%. This is significant because the overnight interest rate is a benchmark for consumer mortgage rates.

In late April, several of Canada’s big banks raised the rates on some of their fixed-rate mortgages. While the current rates are still low compared to those of the 1990s or even the early 2000s, Canadians already saddled with record levels of debt are concerned about taking on even more debt, should interest rates continue to rise.

Will house prices ever go down?

According to the most recent figures from the Canadian Real Estate Association, the average Canadian home sold for under $481,500 in July. Selling prices varied widely from region to region, with the most expensive homes being in the Greater Vancouver, Lower Mainland and Fraser Valley regions of B.C., and in the Greater Toronto Area. While home prices have cooled slightly from 2017, the cost of buying a home has risen significantly in the last five years across Canada.

Bank of Canada research shows that several factors have contributed to Canada’s increasingly expensive housing market, such as limited supply in urban areas, more people moving to urban areas, and a relatively long period of historically low interest rates. (For more: What the interest rate hike means for Canadians).

Are people still buying houses?

“The new [stress test] rules, the inching up of interest rates and a general ‘lower confidence’ in the housing market has compressed the purchasing focus on homes priced in the bottom third of the market,” says Don Campbell, an author and real estate analyst at the Real Estate Investment Network (REIN). “This has led to bidding wars continuing in this zone of the market, while other, pricier properties are seeing slower demand in most cities.”

Despite these challenging conditions, Campbell notes that many first-time homebuyers are still buying. “Interestingly, at the same time we are witnessing an eight-year high in the creation of uninsured mortgages,” says Campbell. He’s referring to mortgages where the down payment is greater than 20% of the purchase price, so mortgage loan insurance from the Canada Mortgage and Housing Corporation isn’t required.

So how are these homeowners making their dreams a reality?

Tips for first-time homebuyers in 2018

  • Create a strategic savings plan with an advisor. Analyze your cash flow and take stock of whether you have any excess spending and where it is — whether it’s shopping, eating out or car expenses, suggests Zack Faubert-Tetreault, a Sun Life Financial advisor. “If you really want to save, rent as cheaply as you can while you do it. Try to trim the fat on all your expenses — that will let you save as much as possible,” he says. After you analyze your cash flow, create a detailed budget with your advisor and stick to it. Budgeting is the key to saving money for the down payment and other home-related expenses such as utilities, renovations and property taxes. “It’s also important to chip away at debt before taking on more debt,” says Faubert-Tetrault.

    Keep tabs on your expenses with our budget calculator.

    Read more: How much does it cost to own a home?

  • Buy a home with family or friends. Lori Williamson is a GTA-based sales representative at Keller Williams Referred Realty Brokerage. She says a major home-buying trend in 2018 is buying with friends, parents or siblings. “Some people buy a home with family with the idea that in five years they will sell it. By building equity, over time everyone may be able to walk away with enough money from selling the home to purchase a home on their own,” says Williams. Co-purchasing can help homebuyers lower expenses and purchase a bigger home than they would be able to do solo. Buying a home with parents can also help young families out tremendously. “Multi-generational housing is beneficial because the millennials can care for parents as they age and grandparents can watch their grandchildren,” says Campbell.

    Read more: How to buy a home with a friend — and stay friends

  • Consider renting out your house. Another way to make home ownership more attainable is by renting out a portion of your home. If you don’t mind sharing your living space, you could take on a roommate or two by renting out single rooms in your home. Alternatively, for more privacy, you could rent out entire sections, such as a basement apartment or the main floor. “Instead of renting out the basement apartment, some owners will live in the basement because they can rent out the upstairs portion for much more, and that’s what’s most cost effective. Especially as a solo buyer, that is a good option,” says Williamson.

    Read more: 7 things you need to know before you become a landlord

  • Consider buying a home outside the city. “If you have home ownership dreams, you may need to buy outside of the big cities,” says Williams. “Look at other regions that are good for jobs or have a university, and don’t be afraid to consider buying in an area that is still up-and-coming. Neighbourhoods like Toronto’s Parkdale and Regent Park, which were once undesirable, are now quite popular.” Williams says that some homebuyers make a home ownership a reality by renting as cheaply as they can in the area they want to live, and buying a property to rent out in a less-expensive real estate market.

  • Ask your family for financial help. Campbell notes that many homebuyers are purchasing homes with help from family, because baby boomers are inheriting money from their parents and passing some of that along to their own children. While not every family is in a position to help, if you feel comfortable it may be worth having a discussion with your parents to see if they are able to give or lend you money towards a down payment.

  • Make your money grow. In addition to using a traditional savings account, talk to your advisor about investing your money in a mutual fund, tax-free savings account (TFSA) or registered retirement savings plan (RRSP). While investing always carries a risk, you can earn much more by investing your money than you could by leaving it in a savings account. If you’re saving in an RRSP, the Home Buyer’s Plan allows you to withdraw some of that money tax-free to buy a home (subject to certain conditions, including a deadline for replacing the money you withdraw). For personalized advice on investing to save for a home, consult your financial advisor.

    Read more: A 4-step guide to saving for your first home