Rising mortgage costs, prices not turning Canadians off housing market

First-time homebuyers and those who intend to buy in the near future optimistic about state of the housing market

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Interest rates are high, home prices are on the rise again and mortgage costs are up, but that’s not deterring a segment of homebuyers in Canada from thinking it’s a great time to jump into the housing market.

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More first-time homebuyers and those who intend to buy in the near future think now is a good time to buy a house compared to the general population, according to research by Sagen MI Canada Inc., a private mortgage insurer. The survey of 2,223 Canadians revealed that 43 per cent of first-time buyers who became homeowners within the past two years, and 36 per cent of those who plan to buy within the next two years, are optimistic about the state of the housing market. Just 13 per cent of Canadians who aren’t in those two demographics agreed with that positive outlook.

That comes as the housing market appears to have caught fire again, with the average price of a home up more than $100,000 in April from January, according to the most recent data from the Canadian Real Estate Association. The average non-adjusted price of a home sits at $716,000.

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At the same time, higher interest rates have driven mortgage costs up for 10 months straight, reigniting inflation last month. Mortgage interest costs in April were up 28.5 per cent from a year earlier, Statistics Canada’s latest reading of the consumer price index said on May 16. That helped push headline inflation up for the first time since June 2022.

Meanwhile, housing affordability has become a major concern among economists and policymakers. The Bank of Canada on May 18 said it was more worried about people’s ability to handle rising debt, which is being fuelled by higher mortgage payments. “Some signs of financial stress — particularly among recent homebuyers — are beginning to appear,” the central bank said in its latest Financial System Review.

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Still, despite warnings about debt and higher carrying costs, many recent buyers don’t appear to be all that worried. Fifty-two per cent of recent first-time homebuyers said buying a house was the right decision, the study said. Further, more than a quarter said inflation and high interest rates haven’t hurt their ability to manage the costs of homeownership. Indeed, this year there’s even been an improvement in the number of newer buyers forced to delay mortgage payments because of financial difficulty compared to 2021, the survey said. Not everyone is forging ahead under these conditions. Some who plan to buy are pausing, with 43 per cent saying they’ll wait a bit longer before they take the homebuying plunge. Yet, another 35 per cent said they’ll move forward with exploring a home purchase anyway.

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That’s not to say prospective and first-time buyers aren’t being realistic about what they can afford in today’s market, however. More than a third of both recent buyers and those planning to join them say they’ve bought or are looking at smaller homes and neighbourhoods with cheaper options. That’s a sign that people are wary of stretching themselves too thin, the survey said.

“Canadian first-time buyers have been, and are entering the market eyes wide open, mindful of what they can afford, the trade-offs they need to make and their own desire to achieve the dream of homeownership,” Stuart Levings, president of Sagen, said in a news release.

The survey also revealed that many people are relying on family to help them come up with down payments. Thirty-five per cent of recent buyers got financial support from family to put down on their home purchase. Another 25 per cent are getting help with their monthly mortgage bills. Without such help, 44 per cent said they would have had to hold off on buying their homes.

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Canada’s household debt, which already exceeds the size of the size of the country’s economy and leads G7 nations, is seeing even greater increases as interest rates rise, according to a report published by the Canada Mortgage and Housing Corp.

The May 23 report said concerns about fallout from high household debt, around three-quarters of which comes from mortgages, are most pressing for those with lower incomes because they also tend to be more highly indebted. So not only do they rely more on having jobs to service the debt, but they are now “facing real pressure” from higher housing costs.

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“We see early warning signs that more and more consumers are getting into financial difficulties,” the report warned, adding that it will soon publish a more detailed report on these troubles.

“Household debt in Canada has been rising inexorably…. Unfortunately, (this) makes the economy vulnerable to any global economic crisis.”

The housing authority said there are concerns Canadians’ high debt levels could be exacerbated over the longer term, depending on the trajectory of interest rates. — Barbara Shecter, Financial Post


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Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.


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