There seems 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 begun to occur in the past two weeks. Our son, Dave, who went to see a house outside of Toronto, had 25 bids registered and eventually went for $660,000 over the listing price five weeks ago. Recently, a house similar to that, in the same area and at the same price today, had no registered offers.
What has changed?
Interest rates are trending higher and most likely, the Bank of Canada is not done yet. There are fewer buyers willing to indulge in this market. Prices haven’t gone down yet and costs have gone up. Sure, this is a recipe for calming things down, but it hasn’t happened yet.
Is the market cold?
Housing prices in Canada are still incredibly high and that’s why – we are still dealing with a lack of supply in desirable locations, high immigration levels have put pressure on demand, along with a strong desire for the urban lifestyle that lives especially in Toronto, Vancouver and Montreal. . The high concentration of buyers increased demand and the detrimental effect led to higher prices. Bid wars have become the norm and successful bidders have often found themselves stretched to the extreme.
What was once considered a reasonable debt/service ratio where your family’s monthly household income covering housing costs can’t exceed 39 percent and where your family’s monthly household income covering housing costs and any other debt simply doesn’t cut it anymore . Lenders expanded the limits on approval limits to get the deal done.
Now don’t get me wrong, it’s still hard to find the right home, in the right location at the right price. Prices are still very high in Canada where there are simply too many people bidding on too few homes, which in turn drives up prices. The result is that the first-time buyer is under pressure. The wealthy seem to have had the upper hand in bidding wars as lower interest rates and larger deposits tilt the odds in favor of those who are financially flexible.
While the challenge in the real estate market may seem obvious – a market with imbalances in supply and demand – it is an oversimplified statement without including the causes of the imbalances.
During the pandemic, many have realized their desire for more living space and shorter commutes, and have found a better appreciation for the way they want to work and where they want to live. The desire to move quickly is underpinned by an incredibly low interest rate environment that is designed to intentionally help stimulate demand and provide certainty to potential home buyers. This policy has become a lifeline for those looking to move in or out of their homes. Indeed, real estate has become the mainstay of our struggling Canadian economy. The desired result was achieved.
It was at the time, but we are at this moment.
Will it become a buyer’s market?
A seller who was previously motivated and who may have simply listed his house to benefit from, now has to consider a realistic listing price in an ever-increasing interest rate environment if he hopes to stimulate interest. This could be a game changer for new home buyers who can handle higher rates.
Stay in touch, there are still people who are willing to sell and buyers who can handle higher rates. But there are fewer of them, so we’ll all be watching closely to see if the dynamics shift to the buyers’ market from the sellers’ market in the past few years.
However, there is a word of caution for first-time buyers: just because you can’t mean you should. Home ownership is still expensive. The impact on your lifestyle, when maxed out, is significant. The disposable income you once had that allowed you to eat out, travel, and frequent live entertainment will be gone. The economy is picking up, so realize that the fear of losing your dream home can soon be replaced by the fear of losing the lifestyle you once had.
Before you jump into a home more expensive than you can comfortably afford — just because you can afford higher prices — I think it still begs the question: Should you?