REAL ESTATE COLUMNIST

Market is tough: Tomkinson

If it feels like it’s getting harder to find a nice, reasonably priced house in Montreal, it’s because it is. The bar is getting higher for first-time homebuyers who hope to get into the Montreal market. It isn’t just that prices are going up. It’s that buying power is going down.

According to Paul Cardinal, a Greater Montreal Real Estate Board economist, many firsttime buyers are now effectively priced out of the detached-home market in many parts of Montreal.

“What we know for sure is that second- and third-time buyers are the most active right now on the market, especially on the island,” Cardinal said. “If you’re a first-time buyer, you’re looking at the very east part or west part of Montreal, or a condo instead of a single-family home. Or if you absolutely want a single-family home, you might have to go to the suburbs.”

After 15 consecutive quarters of increasing sales, the inventory of homes for sale is lower than ever, and prices are reaching new highs.

The momentum doesn’t appear to be slowing — this year’s firstquarter sales were the highest in seven years.

In the past 10 years, median house prices on the island of Montreal have increased by 63 per cent, while the median income has increased by only nine per cent, making it harder than it used to be to save for a down payment.

On top of that, new mortgage rules introduced during the past couple of years have reduced how much buyers can borrow and how long they can amortize the loan.

This combination of factors is making it harder for first-time buyers especially to find a home they can afford.

In 2008, a family could buy a typical single-family home in the Sud- Ouest area for $275,000, with a minimum down payment of $13,750, Cardinal said. In 2018, it would cost more than $600,000 for that home, with a down payment of about $36,000. To qualify for the loan in 2008, the buyers would have had to earn about $60,000 per year. In 2018, they would have to make more than $100,000.

For areas like Mount-Royal, where the median price of a single-family home now exceeds $1 million, buyers are looking at a down payment of hundreds of thousands, rather than tens of thousands.

Buyers usually only need five per cent down to purchase a home, but two years ago CMHC began requiring 10 per cent down for insured mortgages over $500,000. And for mortgages over $1 million, CMHC mortgage insurance is no longer available and buyers must put down a whopping 20 per cent.

Even if a family has the $200,000 income to qualify for a million-dollar mortgage, they would need to come up with a down payment of about $265,000 on a $1.3-million Mount-Royal home today. If you were to travel back in time to 2008, that same house would be worth about $680,000 and our buyers would need to put down only $34,000.

Despite all this, Montreal is still considered an affordable city compared with other Canadian metropolises.

While there are a growing number of million-dollar homes in Montreal, we’re nowhere close to seeing million-dollar teardowns like Vancouver or Toronto.

First-time buyers can still get a foothold in the market here, but according to Cardinal, as time goes by it will be less and less likely that they will be able to afford a detached starter home on the island.

“Scarcity dictates prices. The more scarcity you have, the more upward pressure there is on prices,” Cardinal said. “On the island of Montreal, where land is available to build, it will be for condos. Scarcity of single-family homes will increase.”