Over two-thirds (68%) of Canadians say they plan to wait until mortgage rates drop before they decide to purchase a house.
That percentage is even higher among younger demographics, according to the results of BMO’s Real Financial Progress Index.
For prospective Gen Z homebuyers (ages 18 to 24), 71% say they’ll defer their home purchase until rates are lower, while 69% of younger Millennials (ages 25 to 34) say the same.
“Amid this challenging and changing market, homebuyers are keeping a keen eye on interest rates,” said Hassan Pirnia, Head, Personal Lending and Home Financing Products, BMO.
Housing affordability still a challenge for buyers
Despite last year’s house price correction, and a slow start to sales in early 2023, home sales activity — and prices — have once again started trending up.
Housing activity has now rebounded by 11.3% compared to last year, with prices “firming,” BMO Economics noted.
In April, rising demand helped push Canada’s national average home price up to $716,000, a 6% increase over March, according to data from the Canadian Real Estate Association. While the average sale price remains down 3.9% from April 2022, it has now surged by $103,500 since January 2023.
“Even after last year’s price correction, the combination of past price gains and higher mortgage rates leaves housing affordability near the most challenging level in more than 30 years,” BMO noted.
Mortgage payments as a percentage of income remain at a “still elevated” 60.9% as of the first quarter, according to National Bank’s Housing Affordability Monitor. That’s down by 5.4 points from its “most unaffordable level in over 30 years,” National Bank noted, thanks to prices that are still below year-ago levels and mortgage rates that, until recently, had been easing.
However, with the latest Bank of Canada rate hike this week, and the surge in bond yields that is now driving fixed mortgage rates higher, this affordability reprieve could prove short-lived.
How are prospective buyers responding?
Given the current affordability challenges, the BMO survey revealed the top ways in which Canadians are responding and how the current economic conditions are impacting their homebuying plans:
- Waiting for lower rates: 68% said they plan to wait until mortgage rates drop before making a home purchase.
- Waiting for better economic conditions: Over half (51%) of respondents said they are deferring their homebuying plans due to concerns about the economy. About a fifth (18%) said they plan to wait until 2024 or later.
- Refinancing options: Seven in 10 (69%) said they are waiting to refinance their mortgage until mortgage rates drop.
- Financial anxiety: After concerns about their financial situation (81%) and a fear of unknown expenses (83%), housing costs came in as the third largest source of financial anxiety for Canadians.
However, despite the affordability challenges, one thing remains certain: Canadians’ dream of homeownership remains alive.
A recent CIBC survey found that owning a home remains a top goal for 71% of non-owners. Another 63% said that home ownership is so important to them that they plan to help their kids with a down payment someday.
A similar survey from Mortgage Professionals Canada found that 8 in 10 Canadians continue to believe real estate is a good long-term investment.