First-time buyer prospects a 'big question' for 2024

Could affordability improve in the year ahead?

First-time buyer prospects a 'big question' for 2024

Sales activity across major Canadian housing markets may have cooled dramatically since interest rates began rising – but there’s been little relief for homebuyers, with affordability continuing to creep out of reach.

Buying conditions deteriorated in 10 markets surveyed by throughout last year, with Toronto, Victoria, and Hamilton among the cities to see affordability worsen despite property values falling amid a spike in interest rates.

The figures tell their own story: in Vancouver, an extra $24,600 of income was required to afford an average property in December compared with January, while Calgary saw a jump of $14,770 and Ottawa, Toronto, and Halifax all posted a required income increase upwards of $10,000.

That picture isn’t expected to get any rosier for new buyers, with little to no chance of a plunge in home prices across leading markets in the year ahead.

Are opportunities emerging in pricier markets?

In the Greater Toronto Area (GTA), a series of factors are keeping the outlook uncertain for the year ahead, although they offer no solution to the “big question” of prospects for new buyers in 2024, according to a top mortgage broker based in the region.

Leah Zlatkin (pictured top), chief operating officer at Mortgage Outlet, told Canadian Mortgage Professional that a likely lower-interest rate environment, a continuing surge in immigration, and a sluggish economy were likely to counterbalance each other and keep prices relatively steady for the year ahead.

“When you have declining rates and immigration, that usually leads to an increase in pricing. But when you’ve got a slow economy, that can be something causing a lag when we look at people looking to get into their first home,” she said.

“I think it’s still going to be a little bit slow because most of those first-time homebuyers are a little bit more hesitant.”

Prospects may be better for current homeowners who may be looking to upgrade, Zlatkin said, with many properties at higher price points – especially in the GTA – not moving as quickly as they did when activity was stronger.

“There’s still the opportunity to snag some of those properties for a lower value, and we might see some movement for people looking to upgrade or upsize,” she said.

Vancouver, meanwhile, is expected to post a solid year for real estate in 2024, with Royal LePage anticipating a 3% uptick in Metro Vancouver home prices by the end of the year.

Affordability struggles continue despite government measures

Among a slew of measures rolled out by the federal government to tackle Canada’s housing affordability crisis has been the first home savings account, a registered plan allowing first-time buyers to avail of a tax-free in, tax-free out arrangement at a maximum contribution cap of $8,000 per year.

Over half of new buyers in Canada are likely to use that account, according to a recent Bank of Montreal (BMO) survey, although awareness of its features and benefits remains thin on the ground.

While 52% of respondents to the survey – which polled just over 1,500 Canadians between November 3-8 last year – said they would probably use the FHSA, fully 69% indicated they weren’t knowledgeable about the account.

Among parents, just under a quarter (24%) said they would likely use the account to help children save to purchase their first home.

Still, the income required to fund an average property purchase across the 10 markets studied by remains out of reach for scores of first-time borrowers, even if interest and stress test rates are projected to fall in the year ahead.

In Vancouver and Toronto, the required income as of December 2023 was well north of $200,000, with Edmonton ($85,430) and Winnipeg ($78,110) the only two cities whose average required income fell below $100,000.

Nor is that outlook expected to improve anytime soon. While economists expect the Bank of Canada will begin to trim interest rates at some point in the year ahead, there’s little consensus on when that will take place – and stubborn inflation, as well as a flurry of housing market activity in December, have seemingly lowered prospects of a cut in the first half of the year.

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