A new normal has some people rethinking their future homelife plans.
Apparently, it’s going to take more than a global pandemic to put the brakes on Canada’s rollicking real estate market. In fact, many changes brought on by the pandemic are influencing buyer behaviour and transforming some long-standing trends.
While a home-buying plan still largely depends on the key factors of cost and location, today’s historically low interest rates and the vast number of jobs that are now done from home are encouraging some Canadians to rethink what kind of future home could suit their ideal lifestyle. In other words, more real estate decisions are being based on where people want to live, not where they feel they must.
Big city vs. small town
Given lower interest rates, the increased amount of time people are spending at home and the fact that many of the amenities that make big cities so attractive have been scaled down because of the virus, home buying in smaller communities is surging.
A 2020 real estate survey found that 32 per cent of Canadians no longer wanted to live in urban centres, and instead are hoping to move to rural or suburban communities.[1] Another study showed more Canadians than ever are moving away from large cities. In the past year, 50,375 people moved away from Toronto and nearly 25,000 residents left Montreal, record-setting losses for both cities.[2]
Many hopeful house hunters are now broadening their criteria for an affordable home to include more room for the family and perhaps a home office, and preferably nearer to green space and outdoor recreation areas. Above all, a home that can accommodate a better balance of work, rest and play is a priority that’s clearly gaining traction in real estate decisions.
Renters rushing to buy
The pandemic has influenced the type of housing preferred by today’s active buyer. Single-family homes, which may have seemed out of reach for some renters, suddenly seemed more attainable when interest rates fell in 2020.
A survey of non-homeowners found that the number who expect to buy a home in the next year had doubled from seven per cent to 14 per cent over the preceding nine months.[3]
Supply and demand
The Canadian Real Estate Association (CREA) reported that in the last half of 2020, homes sales activity surpassed previous levels in nearly every Canadian market. Last year, a record 551,392 homes were bought and sold over the Canadian Multiple Listing Service’s (MLS®) Systems, an increase of 12.6 per cent from 2019.[4]
The brisk sales activity has amplified an ongoing challenge: a dwindling supply of available homes in sought-after areas. And with the rising demand (and prices), affordability is another major obstacle for many, especially first-time buyers. In the current environment, competition among buyers may continue to be fierce.
Some industry analysts predict that in 2021, the national benchmark home price could rise more than eight per cent above the 2020 year-end average of $607,280 – and home resales could reach 6.5 per cent above 2020 levels, the strongest ever seen in Canada.[5]
Favourable conditions
There’s a lot of speculation about the effects the pandemic will have on the Canadian economy and how long they will last. But given the current combination of favourable conditions, including historically low interest rates, positive economic forecasts and a swell of new buyers clamouring to find a home of their own, there’s tremendous confidence that Canada’s real estate market will continue to thrive.
Whether you’re a potential buyer, seller or both, speaking to your advisor about how your future real estate plans could affect your long-term financial goals should be among your list of tasks.
A mortgage is a fact of homeownership
Unless you can pay cash for a new home, a mortgage will be a fact of life, possibly for many years. Qualifying for and retaining a mortgage can be exciting – it means you’re on your way to owning your new home! But it’s also a big responsibility.
When you add a mortgage payment to your regular bills and any debt you’re currently carrying, the obligations can become overwhelming, even when interest rates are low. This is one reason for the popularity of bank accounts that take an integrated approach to meeting all those payment obligations. As long as the income you deposit exceeds your mortgage and living expenses, you effectively reduce your debt and the associated interest you pay. You can stay further ahead financially and still have access to your home equity if the need arises.
Calculating the weight of mortgage rates
According to CREA, the average price of a single-family home in Canada was $607,280 in December 2020.[6] After subtracting a 20 per cent down payment ($121,456) from this average price, the remaining amount on a mortgage would be $485,824.
Over the course of a typical 25-year mortgage with a two per cent interest rate, you would
- make 300 monthly payments of $2,059
- pay $485,824 in principal and $131,931 in interest, for a total cost of $617,755
Home buyers can expect interest rates to change over time, which will influence the total cost of carrying a mortgage. Even relatively small rate increases can significantly affect how much you will eventually pay. Here’s a breakdown of what it will cost to pay off that $485,824 mortgage principal with slightly different interest rates:
25-year mortgage = 300 monthly payments | Principal paid | Interest paid | Total cost | Difference in total cost |
300 payments of $2,059 @ 2% interest | $485,824 | $131,931 | $617,755 | - |
300 payments of $2,303 @ 3% interest | $485,824 | $205,325 | $691,150 | (+) $73,395 |
300 payments of $2,564 @ 4% interest | $485,824 | $283,483 | $769,307 | (+) $151,552 |
For illustrative purposes only.
Regardless of the amount that’s owed on a mortgage, consider making prepayments when possible or maximizing interest paydown through integrated banking products that easily adapt to your changing circumstances and goals.
Buying a house, whether to live in or as an investment, involves plenty of decisions. That’s why it’s best to seek help from professionals in all aspects of the process, beginning with your advisor, who can help you make the right moves from the start.
[1] https://blog.remax.ca/top-canadian-real-estate-news-stories-of-2020
[2] The Daily, Canada's population estimates: Subprovincial areas, July 1, 2020, January 14, 2021, Statistics Canada, https://www150.statcan.gc.ca/n1/daily-quotidien/210114/dq210114a-eng.htm?HPA=1 (accessed January 29, 2021).
[3] https://mortgageproscan.ca/docs/default-source/consumer-reports/rapidly-evolving-expectations-in-the-housing-market---report-1-august-2020-en.pdf
[4] https://www.ctvnews.ca/business/home-sales-hit-record-in-2020-canadian-real-estate-association-reports-1.5268200
[5] https://torontostoreys.com/canada-housing-market-record-2021-rbc
[6] https://www.ctvnews.ca/business/home-sales-hit-record-in-2020-canadian-real-estate-association-reports-1.5268200
