Buyers finding creative ways to get into the housing market
When purchasing a home gets pricey, buyers get creative.
A new survey has found that many Canadians still have a high interest in buying a home, but a growing number — including buyers in Edmonton — are looking at alternatives to get into the market because of rising costs.
“There is a lot more multi-generational housing, for example, going on today than ever before,” says John Carter, broker/owner of Re/Max River City in Edmonton.
“We're seeing more instances where two or three families — or multi-generations of one family — are living together in a larger home.”
Going in on a purchase of a home with family members that are not a spouse is among a handful of alternative strategies Canadians are increasingly leveraging in markets now typically characterized by low supply, rising prices and tougher mortgage qualifications.
The Re/Max Canada survey, Alternative Home Ownership Models: Trends in the Canadian Housing Market, found more than 10 per cent of buyers have purchased a home using non-traditional means. It further revealed that nearly 33 per cent of those surveyed are considering alternative ways to purchase a home.
Among those, 22 per cent would consider rent-to-own; 21 per cent would contemplate ownership with a family member that is not a spouse, and 17 per cent might rent a portion of their home for additional income.
“To me, the numbers reflect that Canadians' interest in ownership remains high despite the current challenges,” says Christopher Alexander, president of Re/Max Canada.
Despite fixed-rate, five-year mortgages falling to below five per cent in Canada in recent weeks, a big barrier remains borrowing costs resulting from the federal stress test requiring Canadians to qualify at two percentage points higher than their offered rate.
In Canada's priciest markets, like the Greater Toronto Area, alternative purchasing strategies are much more common than in markets like Edmonton, the study notes. Toronto Regional Real Estate Board numbers reveal, for example, the average condominium price in February was about $695,000 in Toronto.
Edmonton is a far less costly market. Here, the average price of a single-family detached home was about $508,000 in February and, for a condominium, it was about $181,000, Realtors Association of Edmonton statistics show.
Carter says the “bank of mom and dad” option remains a popular strategy in Edmonton, with parents gifting adult children money for a down payment.
Yet this approach was not mentioned in the study, given its widespread use in larger markets, making it much more the norm than an alternative for first-time buyers, Alexander says.
The approach is also increasingly challenging because many retired parents seeking to use their home equity to help their children with a down payment face higher debt servicing costs, Carter adds.
Rent-to-own is also growing in use even in Edmonton.
But the strategy involving buyers and sellers setting up an agreement where a portion of rent is set aside in a separate account to accumulate as a down payment to purchase the property comes with caveats.
“The problem with rent-to-own is most people — agents included — are not familiar with how to set it up properly, so buyers are taken advantage of,” Carter says.
“And I have seen instances of landlords/sellers just keeping the money.”
Buyers renting out part of their home is probably among the most viable strategies, even in Edmonton where many new infill homes include rental suites, he says.
Yet, these alternatives may become less popular as borrowing costs fall as expected later this year — so long as prices do not accelerate too rapidly, Carter adds.
“For the time being, though, more buyers are looking at these alternatives so they can get into the market sooner rather than later.”