Will There Ever Be Enough Relief?
During the pandemic, housing prices in Canada soared, leaving a significant portion of Canadians feeling discouraged about the prospect of ever owning a home.
It is no surprise first-time and lower-income buyers are struggling to enter the home buying market. Entry-level pricing is no longer on the table in major urban centres. In the pursuit of affordable housing, potential buyers often have to broaden their horizons and consider areas outside their preferred location, and sometimes even outside their own province. This may require making compromises, but it can open up new possibilities and opportunities.
The question we hear most often is, “Will I ever be able to afford a home in my desired area?”
The COVID-19 pandemic saw an unprecedented upswing in the Canadian housing market. People were looking to move out of urban centres and relocate to rural communities. Orillia, North Bay, and the Eastern Townships in Ontario have witnessed a remarkable surge in population, with many people from major urban centres like Toronto flocking to these regions. Consequently, this influx of individuals has led to a surge in housing prices. Bidding wars saw houses selling at hundreds of thousands of dollars over asking price. People wanting to move were often buying without ever visiting the property.
We are currently witnessing a gradual decline in the market in various regions across the nation. Coupled with the rise in interest rates, this has significantly decelerated the housing market. Will the emergence of new homes, subdivisions, and condominiums provide any respite to first-time homebuyers and people with lower incomes?
The latest real estate data shows that a substantial number of Canadians are facing a formidable challenge when it comes to the housing market. A remarkable 66 percent of Canadians feel an inability to promptly make an offer, showing a significant increase from the 54 percent recorded in 2020.A recently conducted study revealed that approximately 30% of Canadians expressed their inability to afford the required down payment in order to make an offer on a home.In fact, 84 percent of participants in a study group listed unattainable down payment as the most significant barrier to homeownership.Studies show that across Canada there are five barriers to homeownership:Economic Fluctuation: 46 percent
Interest Rates: 44 percent
Insufficient Capital/Savings: 36 percent
Neighbourhood: 34 percent
Language and Terminology: 31 percent
The main obstacles that prevented people from achieving the dream of owning a home in 2020 included insufficient funds, concerns about COVID-19 safety, challenges in obtaining mortgage approval, dissatisfaction with the location, and the burden of a complex bureaucracy. Fiscal burdens long term also played a part in overall concerns.
Toronto continues to be one of the most expensive cities to live in Canada. The lack of affordability across the board has left many people looking elsewhere for reasonable housing prices. To increase its revenue, the city added a municipal land transfer tax. Homebuyers in Toronto will also pay the provincial land transfer tax, which was introduced in Ontario in 1974. Coupled with new down payment percentages based on price, this compounds affordability pressure. Home buyers will have to factor in these additional costs if they want to live within the city limits.
Despite the existence of multiple programs to assist with expenses, the fact remains that those extra costs present a significant obstacle for numerous individuals who hope to buy a home in this region.
There may be some light at the end of the tunnel, however. The recent rising interest rates have resulted in a slower, less volatile market. The Bank of Canada (BoC) appears to have put interest rate rises on hold, in turn tightening the cycle. This could mean interest rates have peaked for the time being.
In February 2023, the national house price average fell to $662,437, down 18.9 percent from its highest point in February 2022. If we exclude the market statistics of the Greater Toronto and Greater Vancouver areas, the average cost of a home drops by approximately $135,000.
While prices are beginning to level off, it may be 2024 before we see the market become more accessible to a broader number of Canadians.
