Canada’s potential first-time homebuyers are increasingly giving up on homeownership. Mortgage Pros Canada (Mortgage Pros) conducted its semi-annual State of The Housing Market survey, and among the key insights was the decline in home-buying aspirations. Nearly half of renters no longer believe buying a home is possible, with a large share of young adults considering dumping their province for a more affordable place.
Young Adults Increasingly See Homeownership As Impossible
Canadians are losing hope when it comes to buying a home. Nearly half (48%) of non-homeowners surveyed don’t see themselves ever being able to buy a home. It’s a sharp increase of 15 points compared to just six months ago, as Canada remains near its worst level of affordability ever.
Only a small share of non-owners plan to purchase anytime soon. Less than 1 in 5 (17%) non-owners plan to buy their first home within the next 24 months, down 5 points from a year before. That seems high, but intentions aren’t quite accomplishments. Only a fraction will be able to hit their goal, and with the rapid erosion of intentions—it can be lower in another six months.
As bad as that is, the good news is it’s better than the press release delivered by Mortgage Pros. Their headline read, “Half of Canadians think they will never be able to buy a home.” Considering more than half of Canada is already in owner-occupied housing, that’s hard. The burden largely falls on young adults, especially recent immigrants.
2 In 5 Canadians Want To Leave Their Province For Affordability
The burden on young adults is clear by the number of Canadians looking to relocate. Non-owners (42%) were twice as likely as owners (22%) to consider moving to a new province for affordability. The organization said this skewed to younger adults, with half of Gen Z and a third of Millennials considering a move. A credit bubble means stretched affordability in most regions, but stretched in New Brunswick may seem affordable to Ontario incomes.
Prospective First-Time Buyers Still Don’t Understand Interest Rates
Another key insight is that non-owners don’t quite understand the relationship between housing affordability and interest rates. Three-quarters (77%) of non-owners believe rising rates hinder their buying plans. About 57% of non-owners feel that increasing rates will delay their purchase or force them to buy a less expensive property. The last point may be partially true.
Lower interest rates on the same amount of debt is more affordable. However, low rates don’t operate in a vacuum—they influence demand. Most importantly, they affect the type of demand.
The recent market is a great example, where buyers faced record low rates. The share of first-time buyers fell as investors outcompeted them. Low rates don’t just help first-time buyers but increase leverage and profitability for investors, too. Cheaper rates but more competition and fast-rising prices come with the territory. This makes it harder to actually purchase a home.
Bank of Canada (BoC) research also found that 30 years of lower rates didn’t improve affordability. Instead, the additional leverage was captured, helping to fuel higher home prices. Whoops.
Higher interest rates, on the other hand, reduce profitability for investors. This results in less competition and lower prices—thus improving affordability. It’s the only way that home prices have historically been able to fall in real terms. The evidence just isn’t popular with the real estate industry.