Barriers to Homeownership Faced in The Canadian Housing Market

Is purchasing a home in the Canadian real estate market harder or easier today?

For many prospective homebuyers, achieving the Canadian dream of homeownership is a challenging feat. Homebuying conditions have become more challenging, from putting together a down payment to qualifying for a mortgage in a rising-rate environment.

Indeed, the barrier to entry, especially among first-time and lower-income buyers, has risen significantly. But will it ever ease enough that more households can buy a residential property, whether a detached house or a condominium? A new study commissioned by RE/MAX suggests that many families are sitting on the sidelines.

Report Identifies Barriers to Homeownership Faced by Canadians

During the coronavirus pandemic, the Canadian housing market was moving at lightning speed, from major urban centres to rural communities in Atlantic Canada. During this time, many tried to gain a foot in the real estate door and often acquired a property that might not have matched their desires.

But now that conditions have stabilized and the correction has reached into many aspects of the nation’s housing sector have things slowed down?

The latest RE/MAX report found that 66 percent of Canadians think the housing market is still moving faster than they could make an offer, up from 54 percent in 2020.

“I don’t know how sustainable it is for prices to be the way they are now, but buying the two-bedroom was a pretty quick decision. A part of it was that we didn’t want to be priced out of the area because I do think that it will continue to get expensive, and the longer that we had waited, I don’t think a two-bedroom would have been affordable for us,” said a repeat homebuyer in British Columbia.

But jumping in head first might be impossible for a notable percentage of the homebuying population.

According to the study, 28 percent of Canadians report being unable to afford any type of down payment. In fact, 84 percent of study participants listed affording a down payment as the most significant barrier to homeownership. This was followed by home renovations (83 percent).

How about for Canadians in general? Here were the five barriers to homeownership:

• Economic Uncertainty: 46 percent
• High Interest Rates: 44 percent
• Not Enough Savings: 36 percent
• Dislike the Neighbourhood: 34 percent
• Language and Terminology: 31 percent

By comparison, the top five barriers to homeownership in 2020 were a lack of savings, COVID-19 safety, no mortgage approval, a dislike of the neighbourhood, and too much red tape.

As a result of the latest developments in the Canadian real estate market, many families have been engaging in trade-offs, be it on the location or the property type. In other words, a growing number of Canadians are expanding their definition of what is considered “a good fit.” Essentially, they are balancing must-haves and nice-to-haves.

“The area that we ended up buying in, if you had asked me a year or two ago would have been a third-choice area. So we did trade off a bit on location. It’s about a 30-minute walk into the city for us and to my office […] the areas we were looking in prior to were about a 15-minute walk and much closer,” said a repeat homebuyer in Alberta in the report.

State of the Canada Real Estate Market

Today, the average five-year fixed-rate mortgage rate is 5.8 percent, up from 3.58 percent at the same time a year ago.

For the down payment, the amount is up considerably from before the COVID-19 public health crisis as prices remain elevated, despite the housing market correction. But, of course, it depends on where you live. A home in Saskatchewan or New Brunswick is far more affordable than one in Toronto or Vancouver.

It is no secret that the recent slowdown in sales activity resulted from rising interest rates. But now that the Bank of Canada (BoC) has potentially hit the pause button on its tightening cycle, meaning that interest rates have hit their top, will certainty and affordability reign supreme in Canada’s housing sector this year?

Shaun Cathcart, the senior economist at the Canadian Real Estate Association (CREA), believes today’s conditions are comparable to 2019: homebuyers snapping up homes during the typically busy spring buying season.

“The similarities between 2023 and the recovery year of 2019 continued to emerge in February, with sales up, the market tightening, and month-over-month price declines getting smaller,” said Cathcart in a report. “But the biggest similarity was a sharp drop in seasonally adjusted new listings. Future sellers, many of whom will also be buyers, are likely biding their time until the optimum time to list and buy something else. For most, that’s in the spring. Will buyers jump off the fence to snap homes up in 2023 once they finally start to hit the market? They did in 2019.”

In February, the national average home price was $662,437, down 18.9 percent from the record high in February 2022. When the Greater Toronto Area and Greater Vancouver Area markets are removed from the equation, the average home price is roughly $135,000 lower.