Buyers looking to upsize their homes drove the surge of housing activity between interest rate hikes in the first half of the year, according to a new report from Re/Max Canada.
The housing correction across most markets hit its “trough” in January, according to Re/Max president Christopher Alexander, as the Bank of Canada paused its interest rate hike cycle before resuming again in June and July.
That period of stability for interest rates “opened the floodgates” for buyers, Alexander said in a statement accompanying Re/Max’s second quarter review.
A lack of properties on the market during that time, however, meant these buyers were competing for limited listings, and prices in many markets began to climb again after months of declines.
Markets such as the Greater Toronto Area, Hamilton, Montreal and Winnipeg all saw prices rise by double-digits between January and June of this year, according to Re/Max. Relatively affordable Regina saw prices balloon by 20 per cent over that timeframe.
Who were the buyers fuelling a fervent spring market? Re/Max pointed to established owners looking to move up.
Despite the erosion in home values over much of the past year, Re/Max found that in each of the nine large markets it tracked, homeowners on average saw sizable jumps in equity over the past five years.
That’s given sellers in 2023 a chance to upsize their homes, according to Re/Max, especially among those who had held off making a move during the housing correction. Growing families as well as needing to adjust to new work-life arrangements were primary drivers of demand in the spring, the brokerage said.
Re/Max said most markets have shown signs of slowing, with Regina, Calgary and Montreal listed as exceptions.
Alexander said the past two interest rate hikes might have instilled some “pause in the market, particularly at entry-level price points.”
Going forward, Alexander sees things becoming “increasingly difficult” for first-time homebuyers. He suggests that some prospective buyers look at more affordable condos or at homes out-of-province if they’re feeling priced out of the B.C. or Ontario markets, and to consider income properties with rental units to offset high monthly payments.
“Don’t set your sights on the pinnacle out of the gate and get creative if you can,” he told Global News in an interview on Wednesday.
Where can buyers move up?
Moving up can be complicated because even as you build equity over time in your current house, the homes on the next rung up the property ladder are also often getting more expensive. The ability to upsize depends, in part, on growth in an owner’s income and the gulf between home values for entry level homes like condos and detached homes or townhouses.
Alexander said that how much home you can afford while upsizing depends on interest rate levels, how much money you’re making and how much debt you might owe, as well as how much equity you’ve built up in your property, he told Global News.
But it’s hard to line up market timing and the needs of a growing family, he added.
“It’s really all about your life situation. And sometimes you can’t wait,” he said.
Real estate outlet Point2 earlier this month analyzed which markets in Canada had the smallest price gap between condos and non-condo property and factored in median incomes for the respective markets to see where upsizing was most — and least — affordable.
On average, Point2 found that prices for a non-condo property were 40 per cent more than a condo in the 48 most populous cities in Canada. Putting aside any growth in equity over that time, condo owners would have to save up two years’ worth of income or roughly $214,000 to be able to afford to upsize.
In some cities, particularly in Ontario and B.C., Point2’s analysis found the average non-condo property was more than twice the value of the typical condo.
On the opposite end of the spectrum were cities such as Halifax, Trois-Rivieres, Que., St. John’s, Nfld., and Regina. Here, the relatively minor price gap between condos and their detached or townhome counterparts and the strength of local incomes make moving up a stronger possibility than in many Ontario or B.C. markets, Point2 concluded.
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