There appears to be a shift in the real estate landscape and you have to wonder: is there hope on the horizon for qualified first-time homebuyers?
This shift has only started to happen during the past couple of weeks. Our son, Dave, who went to see a home just outside of Toronto, had 25 registered offers and ultimately went $660,000 above the listing price five weeks ago. Recently, a home similar to that one, in the same area with the same price tag today, has had zero registered offers.
What has changed?
Interest rates have headed higher and in all likelihood, the Bank of Canada isn’t done yet. There are fewer buyers willing to dip their toe into this market. Prices have yet to come down and costs have risen. Surely this is a recipe to cool things off but it hasn’t happened yet.
WILL THE MARKET COOL?
Housing prices in Canada are still incredibly high and here is why — we are still dealing with a supply shortage in desirable locations, higher immigration levels have put pressure on demand, along with the strong desire for urban lifestyle living especially in Toronto, Vancouver and Montreal. The high concentration of buyers has driven demand and the knock-on effect has led to higher prices. Bidding wars have become the norm and successful bidders often found themselves stretched to the limits.
What was once considered a reasonable debt/service ratio where your monthly household income that covers your housing costs couldn’t exceed 39 per cent and where the percentage of your monthly household income that covers your housing costs and any other debts couldn’t exceed 44 per cent simply doesn’t cut it anymore. Lenders have been stretching the boundary on approval limits to get the deal done.
Now don’t get me wrong, it is still a challenge to find the right home, in the right location for the right price. Prices are still so high in Canada as there are simply too many people bidding on too few homes, in turn driving prices higher. The result is that the first-time buyer is getting squeezed out. The wealthy seem to have had the upper hand in bidding wars where lower rates and larger deposits have tilted the odds in favour of those with financial flexibility.
While the challenge in the real estate market may appear obvious – a market with supply and demand imbalances – it is too simplistic a statement without including the reasons for the imbalances.
During the pandemic, many came to realize their desire for more living space and shorter commutes, and found a better appreciation for how they wanted to work and where they wanted to live. The desire to move quickly became supported by an incredibly low interest rate environment that was designed to intentionally help stimulate demand and offer up certainty for potential home buyers. The policy became the lifeline for those looking to relocate or cash out of their homes. In fact, real estate became the pillar of strength for our struggling Canadian economy. The desired outcome was achieved.
That was then and this is now.
WILL IT BECOME A BUYERS’ MARKET?
The once-motivated seller who may have listed their home to simply cash in, now has to think about a realistic listing price in a rising interest rate environment if they hope to stimulate interest. That could be a game-changer for new home buyers who can handle higher rates.
Stay tuned, there are still people who want to sell and buyers who can handle higher rates. But there are fewer of them, so we will all be watching closely to see if the dynamics shift to a buyers’ market from the sellers’ market of the past few years.
However, a word of caution to first-time buyers: just because you can doesn’t mean you should. Homeownership is still very expensive. The impact to your lifestyle, when mortgaged to the hilt, is significant. Gone will be the disposable income you once enjoyed that allowed you to dine out, travel and frequent live entertainment. The economy is bouncing back so recognize that the fear of missing out on your dream home could soon be replaced with the fear of missing out on the lifestyle you once enjoyed.
Before you leap into a more expensive home than you can comfortably afford – just because you can afford higher rates – I think it still begs the question: should you?
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
