Rising rates and resurgent home prices are presenting a challenge
Canada’s most populous cities are commonly viewed as its hottest housing markets with the steepest challenges for buyers – but housing affordability is also proving a huge hurdle for many Canadians outside of those metropoles.
In its latest report on housing trends and affordability, Royal Bank of Canada (RBC) indicated that while Toronto, Vancouver, and Victoria stood out as the least affordable parts of the country, buyers in all markets tracked by the bank “face a significantly worse situation than they did a year ago.”
RBC’s local measures, meanwhile, “universally” show that conditions from coast to coast remain tougher than usual, it said.
Sarah Strauss (pictured top), mortgage broker and franchise owner at The Place to Mortgage in Innisfail – just south of Red Deer, Alberta – told Canadian Mortgage Professional that much like in the larger cities, lack of inventory, coupled with rising borrowing costs, remained significant obstacles for many would-be buyers.
“I would say the biggest issue is limited supply,” she said. “There’s not a lot of supply for people, and the never-ending challenges to the qualifying rates [are also challenging].
“We’re giving [our borrowers] a pre-approval or telling them they can qualify for this much, and then the rates go up. Then there’s no cushion, no in-between like we used to have, and so then it’s pushing them out of what they thought they could qualify for. So that’s kind of what we are running into where there are a few challenges.”
“I’ve never experienced clients reaching out for advice as much as I have over the last year. They’re scared and they want to talk about it,” David Clarke of the Clarke Mortgage Group said.https://t.co/R6Kblj087m#mortgagebroker #mortgageadvice— Canadian Mortgage Professional Magazine (@CMPmagazine) June 30, 2023
Homebuyer challenges remain similar irrespective of market
A prominent trend that gathered pace during the COVID-19 pandemic saw many residents of larger cities relocate to smaller, less crowded areas in the so-called “urban exodus” facilitated by the advent of remote-working arrangements.
Out-of-province buyers remain significant movers in the current market, Strauss said, while the volatile economic environment and uncertainty around where rates are going to end up are top of mind for her team in the advice they’re providing clients.
“We’re just trying to be really cognizant of the fact that we’re in a weird interest rate environment,” she said. “So we’re trying to qualify our clients yet also be in a situation where we’re not putting them into positions where they’re going to have high penalties or that sort of thing coming out if rates were to drop back down in a couple of years.”
Still, higher rates and stretched affordability mean that in many cases, a borrower has little option but to choose a five-year fixed rate in order to qualify for the home they want, Strauss added, and the highest mortgage amount possible.
Where in the national housing market are Canadians turning?
In January, the national statistics agency released data showing that homebuyers were continuing to leave Canada’s largest cities in droves as plummeting affordability showed no sign of easing.
In the one-year period between Julys 2021 and 2022, Toronto saw almost 100,000 people pack their bags and leave – mainly for other parts of Ontario – with 35,000 leaving Montreal and 14,000 departing Vancouver, according to Statistics Canada.
A recent study by Point2 Homes, meanwhile, found that 35 of Canada’s 50 most expensive large cities had virtually no homes available for under $200,000, with the other 15 having only some properties listed in that price point.
Twenty-four (24) of Canada’s top 50 cities have benchmark home prices above $1 million, the study showed, an indication of how pervasive the national affordability crisis has become.
At time of writing, the average real estate price for a property in Red Deer was $446,203, according to RE/MAX Canada, with 233 detached homes listed on the market, 82 condos and no semi-detached properties.
The Bank of Canada’s brief pause on interest rate hikes in March and April provided some temporary relief for homebuyers across the country, RBC said, although it emphasized that a “surprisingly solid” market rebound in recent months could also see affordability headaches for buyers continue.
“What’s surprising… is how quickly the demand-supply equation has tightened in many parts of Canada (including Ontario and British Columbia) amid strengthening demand and still-low inventories,” assistant chief economist Robert Hogue indicated in the bank’s recent publication.
“We thought it would take until around fall for upward price pressure to build in most markets. Increasing property values could potentially stall or even reverse the improvement in affordability.”
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