Why trading up in Canada’s hottest housing markets is harder than it used to be
To watch video, you need an Adobe Flash Player Update.Please click to download.
5
Greg Bonnell, Reporter, BNN
1:22 PM, E.T. | May 27, 2016
Real Estate
Tags: Canadian Real Estate Association (CREA), Housing Prices, Millennials
Follow this
Buy a starter home. Build some equity and your career. Then maybe some babies enter the picture. It’s time to trade up to that next-level home.
That used to be the preset course for many Canadians, but that narrative appears to be coming undone in the country’s hot housing markets.
A new report from TD Economics says Vancouver and Toronto’s soaring prices are giving homeowners who want to trade-up a case of buyer's gridlock.
We know from Toronto real estate statistics that sales volumes declined across all property types, save for condos, in April. The Canadian Real Estate Association suggests homeowners in Toronto are not listing their homes out of concern about becoming buyers in a tight market.
And that only further tightens supply, putting upward pressure on prices.
In the report released on Friday, TD chief economist Beata Caranci picks up on that thread, pointing out that, yes, you could get top dollar if you sell.
“But despite a strong appreciation in the price of your home, trading up still requires a hefty mortgage or reduction in savings.”
So what are those homeowners doing?
If they’re staying put and possibly renovating their starter home, they’ve got buyer’s gridlock.
As for millennials who are trying to break into housing, you don’t have buyer’s gridlock as TD defines it. This is about the existing homeowners trading up from the starter home.
But there’s a trickle-down effect for millennials. A young person’s options for buying are limited if people are not moving on from their starter homes.
And if that starter home gets a big, fancy renovation - maybe an extension - it may no longer be considered a starter home when it hits the market.
So what’s the end game? What happens to all those homeowners with buyer’s gridlock?
TD says Vancouver and Toronto “are moving the way of many international cities” where the path is out and up, as in out into the suburbs and up into a condo.
And for first-time millennial buyers, TD says renting for longer becomes the realistic option.
“In itself, there’s no real disadvantage on this front,” writes Caranci.
But since you don’t have the forced savings of a mortgage, you better have a “high degree of financial literacy towards saving for retirement.” |
