Buyers get creative in quest to own a home in challenging market
Homebuyers have alternatives, and they're increasingly willing to use them to get into an ever more challenging market, a new survey has found.
That includes here in Calgary, says Darryl Terrio, local real estate agent and broker with Re/max Complete Realty.
“We're seeing instances, for example, where two buddies are going in together on a house.”
Other alternative approaches are growing in popularity too, according to Re/max Canada's new report, Alternative Home Ownership Models: Trends in the Canadian Housing Market, which surveyed buyers in 22 cities, including Calgary.
It found:
Thirteen per cent of current owners bought their home using non-traditional means. Forty-nine per cent of Canadians planning to buy are considering using one of these strategies.
The three most common alternative strategies considered are rent-to-own (32 per cent of respondents), co-ownership with a family member that is not a spouse (21 per cent), and owner as the primary tenant, renting out part of the home (17 per cent). Respondents ages 18 to 34 and BIPOC Canadians are most likely to consider these alternatives.
Overall, the survey shows that Canadians are still keen on buying real estate, so much so that they're willing to consider these alternative approaches just to get into the market, says Christopher Alexander, president of Re/max Canada.
“This trend will continue so long as qualifying for a mortgage is difficult,” he says. “Between interest rates where they are, the stress test, and all of the other metrics used to approve lending, it's a challenging environment.”
For example, the federal stress test — set out by the Office of the Superintendent of Financial Institutions — stipulates buyers must qualify at two percentage points higher than their offered rate.
As a result, even with fixed, fiveyear mortgage interest rates dropping below five per cent in recent weeks, borrowing costs are challenging even in Calgary as buyers also grapple with low supply and significant price gains.
As of mid-march, the average price of a home in the city was nearly $607,000, an increase of 13 per cent year over year. At the same time, new listings are down about 11 per cent, Calgary Real Estate Board numbers show.
Yet Calgary remains a bargain relative to larger markets like Vancouver, Terrio says.
Consider that in February, the benchmark price of a single-family detached home was nearly $2 million in Vancouver, while the benchmark for a condominium apartment was nearly $771,000.
In contrast, CREB numbers from February show the benchmark price for a single-family detached home was $721,300 and nearly $330,000 for a condominium apartment.
“We're even seeing people coming to buy here from Vancouver and Toronto, where their kids can't afford to buy,” he says.
“So they're buying a house in Calgary with their kid, and renting it out.”
Terrio adds the strategy is aimed at building equity over a few years, and then selling at a profit to use that cash for a down payment for a starter home in Vancouver or Toronto.
While alternative lending strategies are growing in use, Terrio notes they involve added complexity to a purchase, requiring specific legal expertise.
That's especially so for rent-toown agreements to ensure money from rent is actually going toward a down payment, deposited into a separate account so it can be verified by a lender.
Even buying with a “buddy” — among the alternatives increasingly popular here — can involve snags, Terrio adds.
“For example, if two buddies buy a house together, and three years down the road, one gets married and buys something with the spouse, what happens then?”