Why Buying A Home In Canada Is Becoming Harder and Harder | Refresh Financial

Why Buying A Home In Canada Is Becoming Harder and Harder

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That’s right, Canucks… the Canadian housing market just doesn’t seem to be getting any easier to navigate for first-time buyers. Let out a big sigh before we find out how it’s become even harder, now.

It seems that the number of properties that are being sold in many of Canada’s major cities is dropping. The homes for sale in Vancouver have dropped by 40%, according to a recent report. There is less supply for an increasing demand. When a house goes up for sale, what ensues is often a bidding war that results in the property selling above its asking price and well above what it's worth, like what happened in Toronto recently, where a home sold $1M over the asking price. This is leaving first-time buyers, who are already struggling to afford the steep housing costs in Canada, struggling again to pass the new mortgage stress test, with yet another hurdle to get past when buying a home in Canada.

We are seeing fewer and fewer Canadians sell their first home and upgrade to a newer, bigger home more suitable for their growing families. This is due to rising costs of real estate in Canada, as well as the decreasing supply of homes on the market. This, in turn, is seeing the supply of real estate for sale in Canada drop even further. All of this makes it harder for first-time homebuyers to get their foot in the door, and once they do, it becomes a bidding war that not all of them can win.

Many hardworking Canadian couples in cities like Toronto and Vancouver are getting beyond discouraged in their attempts to buy a home. Some feel they will be stuck in their current living situation for the foreseeable future. As the problem worsens, Canadians are becoming convinced that buying a home is downright impossible, despite the fact that they are dual-income households making good money.

As this trend continues to snowball, and the supply of houses on the market continues to decrease, we’re going to see an exodus of young, professional Canadians leaving Canada’s major cities and spreading out into the surrounding towns and municipalities. This will likely put a strain on the housing markets in smaller towns across Canada.

It is quickly becoming a housing market that only the wealthy can break into. The middle class in Canada is being locked out of homeownership and it’s not happening slowly anymore. With the new mortgage stress test, many Canadians have found their state-implemented budget for buying a home, far too low to be able to engage in any bidding wars at all.

As if news about housing prices weren't already frustrating enough... From April to May 2017, the number of house sales in the Greater Vancouver Regional District climbed to a whopping 22.8%. In just one month, sales jumped this much. I know, it's truly hard to wrap your brain around...

Of course, prices are also on the rise with the average cost of a detached home in Greater Vancouver at an absurd $1.8 million. It seems that the foreign investment tax had a mild impact that has all but become obsolete. Kind of like a sneeze. The trend is upward and heading toward record heights.

So, what has got all these Vancouverites selling their homes in such great numbers again? There are two big factors at play here, and they are:

The prices

Rising home prices have homeowners feeling the call to sell now and get the highest price for their home. They see now as the time to cash in, take their millions and head east to cheaper prices. This exodus, in turn, is creating new hot housing markets in smaller cities and towns in British Columbia. Average home prices in the Central Okanagan, for example, have jumped $100,000 since this time last year and inventory is quickly running out, making much of British Columbia simply unaffordable for working class Canadians.

New leadership

After the NDP and Green parties in British Columbia cooperated to form a coalition government, the Liberals lost their tight grasp on the leadership of the province. Since both the Green and NDP parties campaigned on housing affordability, the general expectation is that new measures to slow the housing market are imminent. That could lead to a drop in housing prices, which is just more evidence to homeowners that now is the time to get out. They want to sell now at a high price before prices drop as a result of measures taken by our new leadership.

It will be interesting to see what this new government is going to bring us in the housing market. Speculation has suggested that new taxes on home flippers and homeowners who don’t pay much income tax in the province are coming down the pipeline. Will these be enough to welcome working class Canadians back to British Columbia as homeowners? Only time will truly tell.

In the meantime, be sure to check out some other cities in Canada where the average price of a home is well below half a million: Click here.

How Are Canadians Affording Homes In Big Cities?

For many, living in big cities like Vancouver or Toronto can seem out of reach. Even people making above-average income can't afford to live there, which begs the question: how are Canadians affording homes in Vancouver and Toronto? Who is buying these astronomically priced homes? Unfortunately, there isn't one single answer to this question. In fact, there are many ways Canadians are managing to do the impossible.

1. They were grandfathered in

- This means that the homeowner either owned the home before the prices began skyrocketing or it was gifted from someone who previously owned it. For instance, a parent could pass down ownership of their home to one of their children.

2. They're not buying average-sized homes

- Younger Canadians are typically purchasing apartments that sell for a lot less than the average detached home.

3. Their income allows it

- There are many Canadians who are lucky enough to be making not just a higher than average salary, but a massive salary that allows them to purchase even detached homes in Canada's most expensive cities.

4. They already had money

– Whether from an inheritance, a settlement or maybe they’re incredible money savers. Many Canadians enter the housing market with a whole load of cash behind them. This enables them to purchase homes in both of Canada's most expensive cities.

5. They are not buying their first home

- Before the tougher mortgage stress tests came into effect, many Canadians were able to purchase a home which rapidly appreciated in value. Luckily for them, they were able to sell for much more than they originally paid. This, in turn, gives them the ability to purchase a home outside of their stress test budget.

6. They're bringing in foreign dollars

- Canada sees a lot of immigrants come through its doors each year. Many of which are bringing significant amounts of money with them. This is why government hoped the tax on foreign homebuyers would slow the increase in prices of homes in Vancouver.

7. Criminal activity

- There is a lot of money in crime, and sometimes dirty money can end up being funneled into homes across Canada.

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Do you know how high your credit score should be in order to get approved for a mortgage? Check out this post to find out! What can you do if your score isn't high enough? Refresh Financial has a cash secured loan which is one of the best ways to increase your credit score!

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