The Canadian housing market has long been discussing the impact of housing affordability and rates, with affordability being a significant concern. Recent headlines have only intensified these concerns. In this article, we’ll delve deeper into the data to understand how these factors are influencing both home buyers and sellers. Check out Better Dwelling’s recent article here.
1. 2 In 5 Canadians Want To Leave Their Province For Affordability
A considerable burden falls on young adults, with 42% of non-homeowners contemplating a move to a different province for affordability. This trend is particularly noticeable among Gen Z and Millennials. It’s driven by a credit bubble that’s stretched affordability in many regions, making provinces like New Brunswick appear more affordable compared to high-income areas like Ontario.
2. Prospective First-Time Buyers Still Don’t Understand Interest Rates
One crucial insight is that non-owners often fail to grasp the connection between interest rates and housing affordability. A striking 77% of non-owners believe that rising rates will hinder their buying plans, with 57% concerned it will delay their purchase or force them into a less expensive property.
While low interest rates can indeed make borrowing more affordable, they also intensify demand and competition, particularly from investors. In recent times, this competition led to falling homeownership rates, defying expectations.
3. The Paradox of Lower Interest Rates
Bank of Canada research surprisingly shows that three decades of lower rates didn’t improve affordability. Instead, they fueled higher home prices. The market absorbed the availability of cheaper credit, driving prices upward and making homeownership more challenging.
4. The Role of Higher Interest Rates
Conversely, higher interest rates reduce profitability for investors, resulting in less competition and lower prices. This historical dynamic has improved affordability by bringing home prices down in real terms.
Summary:
The Canadian real estate market grapples with challenges stemming from the intricate relationship between interest rates, demand, and affordability.
For home buyers, understanding these dynamics is crucial for making informed decisions, especially in a market where affordability can be elusive.
Home sellers should be aware that rising interest rates can impact demand and, consequently, prices. Being mindful of market trends and pricing strategies is essential in this context.
The broader real estate market, including professionals and policymakers, must consider the historical evidence that lower interest rates don’t necessarily lead to improved affordability. This complex issue requires careful consideration and innovative solutions to ensure a sustainable and accessible housing market for all Canadians.
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