Buying a home is the biggest purchase you'll ever make — but who says you have to make it? Welcome to New Lease, a series that examines our long-held beliefs about home ownership and renting in Canada.
Buying a home has been in the back of Sarah and Andy’s* minds for a couple years now, but it’s never been the “right time.” It seemed like a lofty dream to own property in downtown Toronto, where even the smallest fixer-uppers can sell above the million-dollar mark, but doing so would be an investment in their futures, they reasoned. The couple, who is in their late twenties, started looking about two months into the pandemic, figuring competition and prices would finally soften with the unsteady economy. They didn’t. “The house hunt has been fun, but frustrating as the market moves so fast,” Sarah says. “We’re slowly realizing that the perfect house doesn’t exist.”
And yet, Andy, Sarah, and some 46% of millennial Canadians, say they plan to buy within the next few years. So do 14% of current Canadian renters (up from 7% last year). With so many of us dreaming of home ownership, is now the right time to buy? Here’s what you need to know before you consider signing a mortgage.
The Canadian housing market in 2020
The real-estate market hasn’t been the friendliest for first-time buyers in recent years, especially in cities like Vancouver and Toronto. (Not-so-fun fact: Prices of homes jumped 69.3% in the past decade in Toronto and Vancouver detached home prices have climbed 159% in the same time frame.) Even outside these notoriously expensive cities, prices have risen across the country. The average home in Canada costs over half a million dollars — while salaries have stayed largely stagnant.
Then came COVID. While it was predicted that housing prices would fall drastically, the pandemic market has been a moving target country-wide. Despite job losses and the shaky economy, many Canadian realtors and brokers tell Refinery29 they haven’t noticed much of a slowdown these past six months. In fact, after a dip in April, housing prices were up 18% in the last year, with normally sleepy August having its busiest year ever. Suffice it to say, after hunkering down at home for the past seven months — and for the foreseeable future — people are craving more space.
As buyers feel increasingly comfortable attending in-person viewings (for now, at least), Teague Brinkworth, an executive broker at Mortgage West in Kamloops, B.C., predicts more activity. This along with “the low inventory and a larger group of people looking for that [perfect] home,” he adds, will keep the market humming along. He also expects more sellers now that pandemic-related financial support like the Canada Emergency Response Benefit (CERB) and mortgage deferrals are ending. (Sadly, people may need to sell.) “If you’re looking to sell, now is definitely the right time. In general, because there are more people looking to buy than there are homes on the market, sellers have the competitive advantage.”
Where are the best places to buy a home in Canada?
That depends on what you’re looking for. Condo shoppers in major cities may be in luck: According to experts, high-rises in cities like Toronto and Vancouver are likely to see a downturn in prices as condo dwellers seek more space and travel restrictions encourage owners of short-term rental (read: Airbnb) units to put their places on the market. Calgary has seen drops in home and condo prices, thanks in part to overbuilding during the oil boom, which ended in 2014.
Buying a house is another, more-expensive story, particularly in areas less-affected by the economic downturn. In Ottawa, a city with a large population of civil servants, housing prices jumped 22% year over year. Other niche markets, like Ontario’s cottage country, have experienced a huge boom as people, not knowing when they’ll be able to travel internationally again, look to buy waterfront real estate with (you guessed it) more space. For the same reasons, the 'burbs are also blowing up.
But there’s good news
The housing market may be all over the map, but there’s one thing working in your favour: Interest rates are very close to historic lows. As of May 2020, the variable (an interest rate that changes over time, based on a benchmark rate) and fixed rates (an interest rate that doesn’t change over the duration of the term) for mortgages were at 1.95% and 2.14%. It’s likely they will remain low into next year to help with economic recovery by making it easier to buy.
Keep in mind that, even if you get a sweet rate tomorrow, mortgage terms are typically three to five years, which means your housing expenses will probably increase down the road. “New buyers need to be aware and budget for those increases,” says Brinkworth.
If you are ready to buy, it’s also a good idea to work in a COVID clause into your offer, which protects buyers and sellers from pandemic-related delays. “If we were to have another shutdown or something to that extent, we would again use clauses because it’s to protect the interest of the clients,” says Kayla Meyer, an Ottawa-based real estate agent.
The bottom line
Pandemic aside, home prices are probably going to continue to increase and outpace people's income and ability to save, says Meyer. “If you’re able to buy a home and you want to buy a home, my advice is always to do it sooner rather than later,” she adds. “Once you buy a home, you begin building equity. Assuming you didn’t buy your dream home first, it protects you from market-increase trends.” Your new home will cost more, of course, but the value of your current place will keep the difference reasonable to the market you buy in.
Still, she’s adamant that this (major! life-changing!) purchase isn’t the best decision for everyone. “Renting does offer some flexibility,” says Meyer. “Once you own a home, you feel a little bit more tied to that property.” Not to mention, in some Canadian cities, rents are dropping.
Ultimately, no one can tell you if it’s the right time to empty your piggy bank and look into buying. Figuring out if it’s the right move for you requires some educated risk, managing your expectations, and patience — plus a whole lot of zeros.
*Name has been changed for privacy.