If you’re shopping for a home this spring, your luck might be changing. According to the new ‘RBC Home Ownership Poll,’ Canadians now believe, for the first time in years, that it’s no longer a seller’s market.
If you have been house hunting for several years, in many cases you have seen home sales go thousands over asking, frequent bidding wars and home values increasing by double digits year-after-year. This has made it very difficult for first time homebuyers to participate in the real estate market, or even see themselves as future home owners.
One of the major reasons for the move away from a sellers’ market is many Canadians are taking a wait–and-see approach to home ownership. Leaving inventory sitting on the market for longer.
“Really depends on where you are in the country.” Says Nicole Wells, Vice President, Home Equity Financing, RBC. She says the shift from sellers’ market has been gradual. She calls it more of a ‘balanced market’ right now, where sellers and buyers see the situation as more equal. This is much different from just two years ago, where most felt sellers held the power in real estate deals.
Wells says their survey also found that 1 in 4 Canadians consider themselves ‘house poor.’ A term that indicates that up to 40 percent of your paycheck goes towards paying housing costs, like mortgage, property taxes, maintenance and utilities. But she says homebuyers can fix that. “While many Canadians tell us that house poor may be a reality, it doesn’t have to be. It may require more effort or time upfront, but being more prepared in the home-buying journey can help bring it all together,” she says.
Here are some of the main finding of the report.
- For the first time in five years, Canadians see the real estate market as balanced between a buyers’ (36 percent) and sellers’ (34 percent) market
- Almost as many home buyers are leaning on family for help (28 percent) as those buying solo (32 percent)
- One-in-four Canadians (25 percent) currently identify as being ‘house poor’
- Down payments are trending up with 47 percent of prospective home buyers planning to put down more than 15 percent
- The market slow down can also be because of new stricter mortgage qualification rules that kicked in at the beginning of 2018. Now new home buyers or those moving their mortgage to a new financial institution, have to prove they could make their payment if the rate was 2 percentage points higher than the posted rate or the Bank of Canada posted rate, whatever is higher.
Wells says the way we buy homes is changing too. It’s not just young couples looking to upsize. RBC’s research shows many are going it alone. Wells says she was “Surprised by the increase of solo buyers.” She was also surprised by the number of those buying with family members and then having each of them rent out a space to pay the mortgage.
What does this mean for the average home buyer today? Should they take advantage of what seems to be a slowdown in the market as real estate buyers put off their decision until later in the year?
Wells advice is to not buy just because the market has shifted. “While many Canadians tell us that house poor may be a reality, it doesn’t have to be. It may require more effort or time upfront, but being more prepared in the home-buying journey can help bring it all together,” says Wells. “Let’s face it, the white picket fence or pride of your name on the deed is a rite of passage and doing it responsibly means there’s still money for the extras in life.”
Interest rates are expected to stay low for the remainder of the year, and that may encourage many Canadians to spend more on their dream home. Always do you own due-diligence when sighing up for a mortgage? Wells suggest we “test drive” our mortgage. See what life would feel like (financially) if you had to pay that mortgage for two, three even four months. What must haves will you have to give up? What extras will you have to cut out?
The results show that many Canadians are still relying on family members to help out with buying a home. Which shows many are paying other debts along with their mortgage, if that loan is not a gift. Make sure you can afford the home you’re buying for the long term. Plan to make lump sum payments along the way, because as rates remain low that payment goes further to reducing your amortization.
Home buying is one of the biggest financial decisions you’ll make, avoid feeling house poor by crunching all the numbers and doing the math for your personal finance situation. It doesn’t really matter whether it’s a sellers, buyers or balanced market. The key question you should ask yourself is “can I afford this home for the long term?“