Over Half of Canadian Home Buyers Are Borrowing The Maximum They Can: CMHC

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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  • Andrew 3 years ago

    I’m facing this decision now. The jump from a townhouse to a detached in Vancouver is like starting from scratch for debt (in terms of taking out the maximum I can be approved for). So I need to stay put, and the condo buyer that would normally buy my place can’t upgrade either.

    Considered moving to another province, but the premium of moving to other places are almost as high now. I know why someone who owns a home that just made 20% last year would have to take out debt to their nose to upgrade. I just don’t UNDERSTAND why they would.

  • David Chan 3 years ago

    This doesn’t even include people that don’t tell the government they had to borrow the money under a different name. Or people that use variations of their name on mortgage applications so they don’t show up as the same person. The really good scam artists double register for their social as well.

  • Whiskey Foxtrot 3 years ago

    The only shocking part is it’s not much higher.

  • D 3 years ago

    Throughout history it’s the same song and dance. Low IQ people and reckless gamblers get into debt so they can make a profit in the future, in this case property. Most of them never make profit and are thrown into abject poverty. Interest rates are going up and just a 200 basis point raise will have a domino effect of collapsing the entire real estate market. The average home will drop to $200k cad down from $800k. As soon as the top 3% exit scam they’ll pull the plug on housing and the serfs will get sheered.

  • Tax Paying Fool 3 years ago

    There are also many who fake their income in mortgage applications successfully. How may people are abusing the Covid-19 government benefits. I hear of ineligible people milking the Covid-19 benefits. Makes me angry wish we had a better system. Those who work and pay taxes genuine tax payers are being made stupid here. And the government have only one goal to get re-elected. Shame.

  • Pepp 3 years ago

    Debt is money, money is debt. With money printing and high inflation coming those with high debt now will benefit long term. For example if you borrowed to your max 10 years ago to buy a home are you better off now? Exactly, the only difference now is we all know 10 next year’s inflation will be much higher. The truth is, when you see debt increase that means prices will go up, not down.

    • Canaduh 3 years ago

      Ahh I wish we had just 5 minutes in person so you could be introduced to some very basic concepts.

    • neo 3 years ago

      Wrong. Debt is not money. Money is used to pay back debt. When you spend a $100 of money you go from $100 to 0$ but when you spend $100 in debt you go from 0$ to -$100.

      • D 3 years ago

        He’s right. All of the money supply is created through debt, the prime contributor being commercial banks issuing loans. Say you get a mortgage for $500k, the bank puts that loan as its asset and that $500k is a liability for you that appears as money in your chequing account. You then spend it by buying a house and the previous owner now has real money in his account. When debts are paid down the money supply decreases and therefore you get one form of deflation.

      • Pepp 3 years ago

        Your math is very questionable, maybe learn some basic economics before you type here.

    • DDD 3 years ago

      Wrong calculation.
      For example your monthly payment 5 years from now can be 2 or 3 times of your current ( people that borrowing you have to make profit, don’t fool yourself that they won’t; as inflation goes up, banks are going to increase % more and more to compensate for it). Your house, however might gain 20% in cost, compare it to your increased monthly payment 2 times bigger.

      Its not profitable to park money in Canada any longer, it used to be because of very shady rules and not transparent speculation, however because of top prices it becomes less and less profitable.

  • Rommel Pravia 3 years ago

    You can buy off market properties, they are sold either renovated or as is, and the price that you ended up paying is a lot less than buying a property on the market …

    Get in touch with me below, I can help you find a property within 3 weeks, just do it and get in touch with me!

    Rommel Pravia

  • Smug Canadians 3 years ago

    Pepp; Keep telling yourself that…..lol

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