Are First Time Home Buyers in BC Struggling to Buy a Home?

It’s no secret that over the last year, housing prices across Canada have soared to new heights. The average housing price nationally has decreased by four per cent from May 2022 to May 2023. Despite the slight decrease in housing prices across Canada, national home sales rose 4 per cent month-over-month in May. In a market where being a first-time home buyer was already costly, this price decrease has not been enough to remove financial barriers for first-time buyers.

The British Columbia real estate market shows the same slight downward trend. The average housing price in BC has decreased by 5.8 per cent from May 2022 to May 2023 but has climbed by 3.5 per cent month-over-month in May. However, with the average price at $995,506 (and nearly $1.3 million in Vancouver), first-time home buyers in BC are still struggling to buy.

Google Canada reports that more and more people are actively searching for real estate using the search engine. Marshall Self, director of the finance industry for Google Canada, states, “What we’re seeing is more and more Canadians are moving outside of the city and looking for different living spaces, larger living spaces overall.”

The search engine reports show that four cities in British Columbia are included in the top ten increases in real estate search results across Canada. Those cities are Surrey, Port Moody, Abbotsford, and Langley. Interestingly, three of the four cities listed are considerably smaller than larger metropolitan areas, with each of them having a population below 150,000 people – a far cry from the over 675,000 inhabitants of the city of Vancouver, proving that many prospective homebuyers are considering moving to less-populated areas in hopes of buying larger properties.

The crux of more rural areas’ high demand is impacting housing prices. Typically, in more remote or rural areas, housing prices are considerably less when compared to more densely populated urban areas. However, the influx of people looking to relocate from urban to rural destinations has spiked housing prices in these less expensive markets, pushing first-time buyers further away from reaching their homeownership goals.

First-Time Home Buyers are Being Affected by High Interest Rates

When looking to buy a home for the first time, many people save up money for years and years to afford the down payment. The average age of a first-time home buyer in Canada is 36 years old, mainly due to many needing to save for anywhere from five to ten years to afford a reasonable down payment. However, the pandemic dramatically shifted these timelines for many.

As the economy has recovered from the COVID-19 pandemic, the Bank of Canada has changed policy interests, which have only worsened the problem. Higher interest means borrowing money is more expensive. In the real estate market, this manifests in higher mortgage payments, with more of it allotted to interest instead of principal.

To make matters worse for hopeful first-time buyers in British Columbia, the federal banking regulator’s proposed increases to the “stress test” may push out potential buyers currently on the cusp of qualifying for a mortgage. These changes are an effort to cool heated markets like Metro Vancouver, but according to Keith Roy with RE/MAX Select in Vancouver, this doesn’t help young buyers: “If you’re a first-time buyer and you’re just barely getting going in your career, you’re going to make more in the future, and you stretch to buy that condo that you want to buy, you’re going to have less purchasing power now,” he said in a CityNews report.

While low interest rates had been an incentive in home-buying games in the past, they are no longer a factor for first-time home buyers. In fact, with interest rates remaining high, first-time home buyers are more likely to hold off on buying until the market is more stable.

Statistically, there are more first-time home buyers in British Columbia; however, after digging a little deeper and looking at the whole picture, it comes to light that first-time buyers make up the smallest portion of total buyers in the BC market. The percentage of first-time home buyers in BC plummeted by 46 per cent from May 2022 to May 2023, while total transactions in BC decreased by 18 per cent. This means more homes are being bought, but first-time buyers are not buying them.

So, if first-time buyers aren’t driving sales, then who or what is? Based on statistics, it is safe to assume that the housing market is being driven by existing homeowners scooping up investment homes or buying a new property and turning their current home into an investment property. If this trend continues, first-time buyers will be pushed further and further out of the market unless the housing bubble bursts and prices dramatically fall in the coming years…which is a whole other story on its own!

What Can First-Time Home Buyers Do?

It doesn’t look like the high interest rates will soon go anywhere. So, what can first-time home buyers do to mitigate the damage?

While this may not be what first-time home buyers want to hear, it might be a good time to wait and work on other debt. Pay down loans as much as possible since less debt will mean a lower interest rate down the line. If you are shopping for a home, get pre-approved for a mortgage so that you have an idea of what you can afford. No matter what, discuss your mortgage options with a financial advisor.

The best advice for first-time home buyers within BC and country-wide: align yourself with a trusted REALTOR® to help you navigate this new red-hot real estate standard. Deals can be found; you just have to know where to look!