First-time buyers eyeing the pricy housing market are considering alternative options for affording a mortgage.
According to the RE/MAX 2021 Housing Affordability Report, 33 per cent are thinking of either renting out a portion of a primary residence (21 per cent), pooling finances with friends or family to purchase a home (13 per cent) or living with like-minded neighbours in a co-op/shared living arrangement (seven per cent).
More than half of the Gen Z and Millennial crowd say they’d even purchase a home in a different neighbourhood or region, just to be able to enter the housing market.
According to a Leger survey commissioned by RE/MAX, 42 per cent of Canadians said the high price of real estate was a barrier to entry into the market. This is up four per cent from last year. Millennials and Gen Z are most likely to consider alternative regions and communities, and/or financing options to keep affordability in play.
“It’s promising to see Canadian buyers deploying their ingenuity to be able to buy a home, but we must address the urgency of the underlying affordability problems, which are predominantly systemic,” says Elton Ash, regional executive vice president, RE/MAX of Western Canada. “While we wait for a nationally and municipally supported housing strategy based on an aggressive goal to boost our national inventory of affordable housing, there are regions across the country, especially in Western Canada, that remain accessible to first-time buyers looking to break into the market.”
Key barriers to affordability, according to the Canadian consumer survey, include a shortfall in salary (26 per cent); the fear of rising interest rates (18 per cent); the fear of being “house poor” (18 per cent); lack of steady full-time employment (16 per cent); current levels of household debt (11 per cent); and the mortgage stress test (11 per cent).
Canada’s two largest cities, Toronto and Vancouver, have struggled with significant affordability challenges mainly due to low supply and high demand due to low interest rates. Unsurprisingly, both cities have remained least affordable year-over-year, according to RE/MAX’s 2021 Housing Affordability Report.
Specifically in Toronto and Vancouver, where there is low supply and high demand due to low interest rates, affordability remains a struggle. Both cities have remained least affordable year-over-year, according to the report.
When compared to Vancouver’s high-priced market, Calgary and Edmonton have both seen an influx of new and prospective home buyers looking at lower-priced housing options offered, as well as appealing liveability factors, such as green spaces and proximity to employment. Low commercial rental rates have also helped to diversify the employment sectors in areas like manufacturing and technology.
The most affordable neighbourhoods in Calgary are Northeast and Southeast Calgary, with entry level homes beginning at $350,000, and overall average prices in 2021 ranging from $266,868 – $588,541 depending on property type. In Edmonton, the most affordable area is Central North.
In Atlantic Canada, markets such as St. John’s that have experienced modest average price increases compared to larger cities like Toronto and Halifax. Current average sales prices across all property types in St. John’s sit at $307,619 – far below the average residential home price in Canada.
Despite an uptick in prices from 2020 to 2021 of about 20 per cent ($465,903-$561,701), Ottawa remains affordable, as well, particularly for first-time home buyers.
According to a wider survey of RE/MAX Canada brokers and agents, some of the most affordable neighbourhoods include: Washington Park, Regina, Saskatchewan; New Waterford, Cape Breton, Nova Scotia; West Flat, Prince Albert, Saskatchewan; Bayview, Sault Ste. Marie, Ontario; and Portage La Prairie, Central Plains, Manitoba.
Meanwhile, in normally expensive markets, some neighbourhoods with homes priced below the city-wide average include: New Westminster in Greater Vancouver; Penbrooke, Rundle and Dover in Calgary; Regent Park in Toronto; North End Hamilton, Ontario; and Hawthorne, Carlton Place and Vanier in Ottawa.
Interest rates for home buyers
As first-time home buyers grab onto low interest rates, some market observers are saying a potential rise could put pressure on over-leveraged homeowners and slow consumer demand.
“We’ve seen many buyers benefiting from low interest rates, which has created a sense of urgency to get into the market,” says Benjamin Tal, deputy chief economist, CIBC. “However, we must caution that low rates are subject to inevitably rise, possibly as soon as 2022.
“We have to focus on the impact that this will have on the housing market and those who have recently purchased at a lower rate, as a one-per-cent increase would significantly raise the monthly carrying cost of a home.”
The majority of Canadians feel comfortable allocating less than 50 per cent of their household income towards housing costs, including mortgage payments, yet concern over the ability to afford a home in the next two years due to rising prices remains. Nearly half (48 per cent) of Canadians share this sentiment, mainly within the under-31 crowd.
“Without a national and locally supported strategy to significantly increase housing supply, prices will continue to rise,” says Christopher Alexander, chief strategy officer and executive vice-president, RE/MAX of Ontario-Atlantic Canada. “It shouldn’t be the burden of the next generation of home buyers to figure out how to ‘get around’ the supply shortage and resulting affordability crisis when there are feasible, long-term solutions within reach.”