Canadian real estate prices have been generous to sellers over the past year, but not so much for buyers. The Canada Mortgage and Housing Corporation (CMHC) released the results of its annual Mortgage Consumer Survey for 2021. One of the more interesting stories told in the data is how buyers are navigating this market. It turns out most are pushing their budgets to spend as much as possible on a house.
Canadian Home Buyers Are Paying As Much As They Can
The majority of home buyers paid as much as they could to buy a home. CMHC found 65% of recent buyers pushed their budget to the absolute max in the latest results. Another 17% said they would rather not say. Let’s be honest, no one’s shy about finding a deal in this market, so those numbers probably lean negative.
The agency left us hanging on the rest of the results, but that means 18% definitely didn’t blow their budget. Good for them. It’s unfortunate it’s less than a fifth of households though.
Canadian Home Buyers That Maxed Out Their Budget
The percent of people Canadian home buyers that said they spent as much as they could buying their home.
Source: CMHC; Better Dwelling.
If you’re thinking, “Canadians don’t borrow the maximum amount they can for a home.” You’re right, they don’t usually. First-time buyers are the only ones to push their budget. Since they’re often younger and are early in their careers, it’s usually less of a potential issue. As their career matures, their payments feel much smaller.
A high rate of budgets maxed out across all segments is interesting though. Existing homeowners usually tap their equity, reducing the need to hit that max. With such a high rate of buyers spending the most they can, this means existing owners are doing it too. It provides a little more evidence of the buyer’s gridlock issue.
Nearly Half of Canadian Home Buyers Were On Budget
Fewer than half of buyers paid what they expected. Only (49%) were on budget, without going over or under. Over a quarter (27%) paid more than they had planned to spend. Only 20%, or one in five, found a deal and paid less than expected.
Canadian Home Buyers On Budget
The rate of recent Canadian home buyers and whether they went over or under on their budget when buying.
Source: CMHC; Better Dwelling
The most interesting observation here is crossing it over with the previous point. The previous point showed 65% of buyers pushed their budget to the maximum. If 49% said they were on budget, then some overlap has to occur. People budgeted the absolute most they could spend, which isn’t usually a great idea.
Almost A Third of Buyers Were In A Bidding War
Ah… now it makes more sense. Bidding wars were likely a big contributor to pushing those budgets to the max. Buyers involved in a bidding war came in at 31% of those surveyed. Bidding wars can often push budgets much higher, since active competition pressures buyers. They totally suck if you don’t have an unlimited amount of capital to spend.
Though not everyone who was in a bidding war thinks they were a bad thing. Of those involved in a bidding war, 38% of them said it was a positive or very positive experience. On the flip side, 34% said it was a negative or very negative experience. The remainder didn’t feel much about the situation, citing it as neutral.
Unexpected Expenses Are Another Contributor To Maxing Out Budgets
Unexpected expenses are another reason budgets are pushed, especially for first-time buyers. Buyers cited the usual suspects for unexpected costs: moving expenses, which 27% found unexpected; land transfers (25%); adjustments, such as pre-paid utilities (25%); home inspections (24%); additional taxes (21%); mortgage application fees (14%); and mortgage loan insurance.
Home buyers pushing their budgets to the max is stranger than it sounds. It’s easily understood how they did it with fast-rising prices, but it’s not typical for Canada. Only first-time buyers usually push their expenses to the extreme. Now the whole country is looking to buy as much house as they can.
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