This article is the second in Global News’ Spring Housing Buzz series, where we will investigate a number of different areas related to the spring real estate market in Ontario. You can read Part 1 here.
First-time homebuyers Onairy and Joseph Baiya love their three-bedroom townhouse in Whitby, Ont., since it has what they need at a six-figure price range they could afford.
Despite Joseph adding a daily commute to Toronto for work, he got the basement he wanted, while Onairy got the extra space to entertain friends and prepare for a bigger family.
The accountant and the office supervisor, who’ve been married three years now, had been renting a condo in Etobicoke until last year when, like many in Ontario, they decided paying rent was a waste of money.
“It was too much. We were paying for that small one-bedroom, like, $2,500 per month,” said Onairy, who’s originally from the Dominican Republic and arrived in Canada a few years ago via Orlando, Fla.
“So we thought, I think it’s the right time to get into buying a house, putting that money towards our mortgage.”
Expectations had to be lowered quickly as getting the four-bedroom detached home close to Toronto that they dreamed of was simply not a reality cost-wise.
“We were expecting to get a detached somewhere closer to the city,” Onairy recalled.
“Like, three or four bedrooms and big backyard. That’s what we thought.”
The pair, who had some experience with the U.S. real estate market, assumed it wouldn’t be much more expensive when they moved to Canada, having a “bias” that prices would be similar considering how big and spacious the country is.
“What we were seeing was not something that was encouraging, and it was actually very frustrating and humbling,” Joseph said.
“But then … we found the right Realtor, we found the right location, and then the timing was just perfect because the pricing was coming down.”
In the early stages of their search, the couple say one Whitby home that had “everything” they needed was snatched away in the last half-hour of bidding when an offer around 30 per cent higher was registered.
“So it definitely was very discouraging,” Onairy said.
“I think maybe we stopped looking for houses for like two weeks because we felt like we were mourning.”
The pair would eventually settle in a townhouse, but it put them almost 70 kilometres from where they once were in Etobicoke, sacrificing location to afford a home in the $750,000 price range.
It’s the reality many other first-timers will have to endure as the average detached or semi-detached home in the Greater Toronto Area soared past the $1 million mark years ago.
Recent data seems to be pointing to a spring market starting early in 2024, with the Ontario Real Estate Association’s January sales activity report disclosing “sizable gains” in sales during the opening month, up 21.4 per cent compared with January 2023.
That somewhat bucks “slow activity and softer price” predictions from RBC’s recent annual market outlook, which submits that the Bank of Canada’s (BoC) current benchmark interest rate will keep the housing market somewhat muted through the first half of the year.
Bring a solid financial picture
Whether the spring market has arrived or not, several Ontario Realtors and mortgage brokers agree that before a buyer knocks on their door, they want to see a solid financial picture.
These days, the first and biggest hurdle for a typical first-timer is coming up with the down payment, a task that’s a lot tougher these days than it was eight years ago before the federal government introduced the mortgage stress test.
Under the rules, first-timers have to come up with at least five per cent for any home costing under $500,000.
As the price increases, a buyer is looking at an additional 10 per cent in costs for a home between $500,000 and $1 million and 20 per cent for each buck after $1 million.
Ratesdotca broker Victor Tran says even with a forecast of lower interest rates from the BoC this year compared with last, it’s still going to be challenging for first-timers with tough qualifying rules from lenders and continuing stress tests.
“Most people, especially first-time homebuyers in their 20s, late 20s or even 30s, they don’t have that money saved up,” Tran said.
“If they do, that’s fantastic, they can get into a home. But because of the high-interest-rate environment, the payments are going to be very high.”
For most of his 20 years in the business, Ajax Realtor Doug Gordon says he’s never seen the financial end of a home purchase as turbulent as it has become in the last few years, putting affordability for some clients into question.
Skyrocketing home prices and a generally low supply of dwellings across Ontario have forced some first-timers to rely on family members for financial gifts or loans to get their start.
“They’re pulling equity out, in some cases, from their own properties to help their kids be able to afford things,” Gordon said.
“We’re also seeing a massive transfer of wealth from the boomer generation that’s going to be passing over the next 10 to 15 years as well. So that’ll carve away, I think, at some affordability issues.”
A Canada-wide poll last year suggested coming up with a down payment caused significant pressure for most first-time buyers, with some 70 per cent of Ontarians “anxious” about missing out and fearing they might not have it.
Around 35 per cent of first-time homebuyers nationwide said they received some sort of financial assistance in the form of a lump sum payment from parents or relatives, with almost half of those saying it was gifted to them.
“That first transaction is the most difficult, and in today’s environment, first-time buyers are faced with large price tags, high carrying costs and the added challenge of qualifying for lending at higher rates due to the stress test,” Phil Soper, president and CEO of Royal LePage, said about the Environics study.
Those financial barriers are pushing up the average age of Canadians entering the housing market, with the largest share of first-timers, 43 per cent, aged 35 or older, according to the 2023 study. Just two years prior in 2021, the largest share of first-time homebuyers were aged 30 to 34, at 38 per cent.
James Laird, co-CEO of Ratehub.ca, says a “lot of people” sat on the sidelines last year amid high interest rates but he suspects things will look a “little bit better” with the prospect of rates coming down.
However, with a lack of supply in many markets, competition for more affordable homes may be high.
“Those more entry-level homes that a first-time homebuyer might be able to get into within their budget should expect a bunch of other people in that exact same boat and a lot of competition for that house,” Laird said.
The interest rate
A Royal LePage report based on Leger polling released last week suggests 51 per cent of Canadians who put home-buying plans on hold over the last two years will return to the market when the BoC reduces the key lending rate.
Since the key lending rate was raised in March of 2022, more than half (56 per cent) of the 27 per cent of the country’s adult population active in the market reportedly were “forced to postpone” their property search as a result of affordability issues.
With the rate of inflation moving to 2.9 per cent in January and edging closer to a desired two per cent federal target, many Realtors expect the BoC to make a cut in the lending rate at some point this year.
Hamilton Realtor Phil Golfi is characterizing the coming spring market as “transitional” due to the everpresent speculation that rate will decrease, which will affect not only home sales but also a staggering number of mortgage renewals coming up in the next year.
Data from the Canada Mortgage and Housing Corporation (CMHC) estimates that some 2.2 million COVID-19-era mortgages, signed with low-interest rates, will come due over the next two years. The number represents almost half of outstanding mortgages in the country.
“There’s a ton of speculation out there that our market’s going to take off again, and housing prices are going to rise rapidly again, which is very scary if you’re a first-time homebuyer that hasn’t bought anything and that’s waiting on the sidelines,” Golfi said.
What you will pay
Those seeking a home in Ontario will face some of the highest home prices in Canada, particularly if looking in areas around Toronto.
OREA says the average price of resale residential homes across the province in January was $821,624, up about 2.9 per cent from the same month last year.
However, in the Greater Toronto Area (GTA), you’re looking at over $1 million for a detached or semi-detached home, about $900,000 for a townhome and $700,000 for the average condo.
Zoocasa.com public relations director Patti Cosgarea says the good news is home prices didn’t “grow quickly” in January due to lower inflation, the steady Bank of Canada interest rate and affordability still keeping some buyers on the sidelines.
Markets with average prices under the $1 million mark include Hamilton, Burlington, Kitchener-Waterloo and some parts of the Niagara Region, while London and St. Thomas are averaging around the $600,000 range.
“In terms of the average price … things are still pretty slow and steady month over month,” Cosgarea said.
“But it really depends on what’s going to happen with the Bank of Canada. I think that if rates do eventually come down, even as early as the spring, we’re going to see prices increase pretty quickly.”
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