Canadians worry about affordability but still see home ownership as vital
A new report on the five-year outlook for Canada's housing market reveals many Canadians are concerned about affordability despite a continuing belief that real estate is a key driver of long-term wealth.
“We're really seeking to put something out there that provides sober thought amid a market that has been red-hot and almost speculative given recent price gains,” says Elton Ash, executive vice-president with Re/max Canada, which published the first of a five-part series forming its fiveyear outlook.
The first report, issued earlier this month, examines current market conditions coming out of the pandemic, while taking the temperature of Canadians' attitudes about housing.
Partnering with CIBC Capital Markets and the Conference Board of Canada, the report focused on three key areas: interest rates, taxation and immigration.
Ash notes all three can have positive and negative impacts on the market.
Among the key insights from the first report is the findings from a survey of homebuyer concerns with 50 per cent of respondents worried about taxation affecting affordability. As well, 46 per cent worried about rising interest rates and 42 per cent were anxious about a looming recession and its impact on real estate values.
While rising rates can certainly impact affordability as mortgage interest rates often move ahead of, or in lock-step with, the Bank of Canada's interest rate decisions, CIBC Capital Markets deputy chief economist Benjamin Tal noted in the report that it's the pace of increases that matter.
Rising rates are ultimately good for the economy and, in turn, the housing market because increases in borrowing costs help dampen higher than normal inflation — home prices included.
“The key piece of information here is that the increases should not be large jumps because those often lead to a recession,” Ash explains.
“Moderate rises in borrowing costs, in contrast, allow Canadians to have a sense of stability as opposed to uncertainty.”
Edmonton realtor John Carter, broker/owner of Re/max River City, says the report reflects likely many first-time buyers' or other recent buyers' anxieties about what their finances will look like in the future in the context of their mortgage payments and related costs — property taxes included.
“They're worried about overstretching themselves due to concerns about rising costs.”
Rising prices in the city have been welcome after a slump in the economy and real estate really struck hard in 2015 and 2016, he adds.
Recent Realtors Association of Edmonton market statistics show record high sales amid falling supply have led to new highs for prices.
The average price of a home in the Greater Edmonton Area in March reached $414,788, surpassing a record set just the month before, and up about six per cent from March 2021.
Demand is likely to continue to remain strong despite higher borrowing costs, driven by immigration, the report notes, especially with the federal government seeking to welcome more than 400,000 newcomers annually for the foreseeable future.
The study further notes these individuals will play a growing role in the market — already accounting for 38 per cent of buyers in 2021 — because they are now able to buy homes in half the time of their historical average of seven years.
Like other Canadians, newcomers still largely see opportunity, risks aside, in real estate. The report, in fact, found 61 per cent of respondents agreed with the statement that real estate remains the best long-term investment.
Carter says Edmonton buyers — despite looming concerns — also see plenty of upside, long-term for real estate, especially in an inflationary environment like today.
“For example, many homeowners are looking to own rental properties now because they can afford to do it and believe that values will go up next year,” he says.
More pointedly, real estate is a hard asset that not only often holds its value but grows long-term, he adds.
“In turn, that's what fuels confidence among so many people in real estate.”