Homebuyer’s Gridlock? 25% of Canadian Real Estate Sellers Can’t Afford To Sell: Zillow

Rising home prices across Canada have increased so much, many homeowners can’t afford to sell. Zillow Canada commissioned a new survey via Ipsos on buying and selling real estate. Buried amongst the usual insights on things like affordability was an unusual insight for sellers. A quarter of homeowners ready to sell haven’t listed, because they can’t afford to upgrade. The result is buyer’s gridlock, where people are “locked” into their situation. It only happens during the frothiest of bubbles, which we are apparently in.

Homebuyer’s Gridlock

Most of you already know what the property ladder is, and it’s a simple concept for those that don’t. Buyers get a starter home to help build up equity, and then use that equity to upgrade. The starter home owner sells it to another buyer, and uses the equity for a mid-tier home. The person who sold the mid-tier can now upgrade to a more expensive home using that money. Each buyer keeps doing this until they own Park Place and Boardwalk.

Homebuyer’s gridlock is what happens when one of those groups can’t afford to make the jump. If the gap between a starter home and a mid-tier one grows too large, the starter homeowner can’t upgrade. If the starter homeowner doesn’t upgrade, the mid-tier owner can’t upgrade either. When things get really bad, there isn’t even a suburb to flee to, due to flattening prices. This results in everyone being “stuck” in place, like they’re in gridlocked traffic.

If the starter homeowner doesn’t sell, the first-time homeowner can’t purchase. This forces them to look further out from the center of the city, or compete with a smaller pool of buyers. This drives home prices higher in either case, making it even more difficult to sell.  Fewer people are moving, placing more pressure on home prices.

Eventually most people are stuck, or gridlocked in the market. It turns into a self-feeding loop, getting worse with each iteration of the process. Falling prices become the only thing that can release the inventory, and get people moving.

1 in 4 Canadian Sellers Haven’t Listed Because They Can’t Afford To Upgrade

Zillow’s survey data indicates this is happening in Canadian real estate. They found one in four sellers have put off listing their home, since they can’t find a new one. It also shows 29% of households see low inventory impacting their decision to buy, sell, or move. This results in a lot of people staying in place, and sends well heeled first time buyers into bidding wars, or to other regions. Rather than an orderly flow, everyone is stampeding for the same few units. Now the flow of buyers is screwy, with a quarter of inventory now inefficiently allocated. 

A real estate market with low inventory produces a market with even less inventory. This is partially why price corrections tend to see so many sellers all of a sudden. They don’t need money, but they can finally sell and take some of those gains off the table. 

Once prices fall to a level where starter homeowners can afford to upgrade, they do. Freeing up starter homes, and keeping the system working. Ironically, falling prices can create more inventory. 

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  • Jin 3 years ago

    The property ladder doesn’t work if the entry point is only affordable to 10% of people. No wonder hedge funds are buying the homes. A generation with 80% homeownership is trying to sell to a generation with 25% ownership.

  • Fazid 3 years ago

    I think once the pandemic restrictions are eased and people can travel, more exisitng homeowners are going to look at retiring in the Carribean or moving out East. We’re already seeing people move to Nova Scotia. I’m betting most people that would consider it want to visit before pulling the trigger though.

    • B.A. 3 years ago

      The net gain for Nova Scotia this year was less than 2000 people once exiting population was taken into account. Hardly the rush people keep trying to pump. In addition the price of real estate in the Maritimes has already risen in anticipation. Of what, at this point, I don’t know. I suspect the fervour for property down East will continue to fade with the pandemic as numbers have shown over the last few months. When your choice of property is either insanely over-priced dirt in one province or only slightly less stupidly over-priced dirt in another, the smart money closes their wallets until reality re-asserts itself. Either that or looks further afield. You should see what Toronto prices can buy you across the pond.

  • Ahmed 3 years ago

    Where do you move is the problem? I’m not going to Calgary.

    • Lucas 3 years ago

      The only major city in Canada to elect a brown mayor gets a lot of hate from people thinking it’s not as nice as vancouver. There’s jerks in Calgary like any city, and they might be more vocal than other places (or amplified by the media), but the reality is it’s a place where people mostly just care about the work you do.

      • Whiskey Foxtrot 3 years ago

        agreed, but my issue is it’s not that much cheaper than Toronto for the hassle of moving. If I didn’t own a home though, condos are a lot cheaper in Calgary. That would be where I’d start.

        For upgrading, that’s a tough one.

  • Mr. Pickle 3 years ago

    Everyone who thinks Ontario has gotten too pricey should consider there are places like Pickle Lake where you can still buy a home for less than 100K. Located 530 kilometres north of Thunder Bay, it is the most northerly community in the province that has year-round access by road. From fishing and hunting, to sight-seeing and local festivals, Ontario’s Last Frontier has plenty to offer.

  • Bill 3 years ago

    One reason Canadians cannot afford to sell is property tax increase. For example a townhouse in Hamilton Mountain could have a tax accessment of $300,000. If it is sold for $650,000 and the upgrade is $850,000. It seems doable. Until one considers the new property will be taxed at the selling rate. That is about $500 more per month in taxes… Leaving much less to pay for the new mortgage.

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