According to the RE/MAX 2021 Housing Affordability Report, one in three (33 per cent) Canadian homebuyers are exploring alternative options to help them get a foot into the housing market. These include renting out a portion of a primary residence (21 per cent), pooling finances with friends or family to purchase a home (13 per cent) or living with like-minded neighbours in a co-op/shared living arrangement (seven per cent).
According to a Leger survey commissioned by RE/MAX, 42 per cent of Canadians said the high price of real estate was a barrier to entry into the market. This is up four per cent from last year – surprising, given the consistent price growth experienced by housing markets from coast to coast over the past year. Among prospective homebuyers, millennials and Gen Z are most likely to consider alternative regions and communities, and/or financing options to keep affordability in play.
“It’s promising to see Canadian buyers deploying their ingenuity to be able to buy a home, but we must address the urgency of the underlying affordability problems, which are predominantly systemic,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “While we wait for a nationally and municipally supported housing strategy based on an aggressive goal to boost our national inventory of affordable housing, there are regions across the country, especially in Western Canada, that remain accessible to first-time buyers looking to break into the market.”
Key barriers to affordability for many would-be buyers, according to the Canadian consumer survey, include a shortfall in salary (26 per cent); the fear of rising interest rates (18 per cent); the fear of being “house poor” (18 per cent); lack of steady full-time employment (16 per cent); current levels of household debt (11 per cent); and the mortgage stress test (11 per cent).
Affordability across Canada
Canada’s two largest cities, Toronto and Vancouver, have struggled with significant affordability challenges mainly due to low supply and high demand due to low interest rates. Unsurprisingly, both cities have remained least affordable year-over-year, according to RE/MAX’s 2021 Housing Affordability Report.
In Western Canada on the other hand, there are some unique outliers when it comes to affordability. When compared to Vancouver’s high-priced market, Calgary and Edmonton have both seen an influx of new and prospective buyers influenced by the lower priced housing options offered, as well as appealing liveability factors, such as green spaces and proximity to employment. Low commercial rental rates have also helped to diversify the employment sectors in areas like manufacturing and technology.
The most affordable neighbourhoods in Calgary are Northeast and Southeast Calgary, with entry level homes beginning at $350,000, and overall average prices in 2021 ranging from $266,868 – $588,541 depending on property type. In Edmonton, the most affordable area is Central North where a two-bedroom bungalow with full basement approximately 900SF would sell between $160,000–$190,000. The most affordable neighbourhoods (Central North) Alberta Avenue offer entry level homes beginning at $160,000 and overall average prices between $175,000–$225,000.
Similarly, in Atlantic Canada, markets such as St. John’s that have experienced modest average price increases (approx. 6.5 per cent since 2020) as compared to larger cities like Toronto and Halifax are offering affordable options for buyers looking to purchase a home without feeling financially over-extended. Current average sales prices across all property types in St. John’s sit at $307,619 – far below the average residential home price in Canada.
Despite an uptick in prices from 2020 to 2021 of approximately 20 per cent ($465,903–$561,701), Ottawa continues to be a good option for affordability seekers as well, particularly first-time homebuyers.
Short of exploring alternatives to be able to buy a home, those who are willing to expand their boundaries can still find “hidden gem” neighbourhoods with below-average prices across Canada. According to a wider survey of RE/MAX Canada brokers and agents, some of the most affordable neighbourhoods include:
- Washington Park, Regina, Saskatchewan
- New Waterford, Cape Breton, Nova Scotia
- West Flat, Prince Albert, Saskatchewan
- Bayview, Sault Ste. Marie, Ontario
- Portage La Prairie, Central Plains, Manitoba
Meanwhile, in what are traditionally considered Canada’s most expensive housing markets, RE/MAX brokers and agents have identified relatively affordable neighbourhoods that offer homes priced below the city-wide average, such as:
- New Westminster in Greater Vancouver, BC
- Penbrooke, Rundle and Dover in Calgary, Alberta
- Regent Park in Toronto, Ontario
- North End Hamilton, Ontario
- Hawthorne, Carlton Place and Vanier in Ottawa, Ontario
View and download the full list of most affordable neighbourhoods in Canadian cities and towns here: http://download.remax.ca/PR/2021AffordabilityReportNeighbourhoods.pdf
Interest rate effect
The record-low interest rates that first appeared in 2020 have been a “double-edged sword,” presenting an exceptional opportunity for Canadians to get into or move up in the housing market, while also adding fuel to an already hot sector. Yet, with inflationary pressures starting to emerge, interest rates could rise soon, putting pressure on over-leveraged homeowners and slowing consumer demand.
“We’ve seen many buyers benefiting from low interest rates, which has created a sense of urgency to get into the market,” says Benjamin Tal, Deputy Chief Economist, CIBC. “However, we must caution that low rates are subject to inevitably rise, possibly as soon as 2022. We have to focus on the impact that this will have on the housing market and those who have recently purchased at a lower rate, as a one-per-cent increase would significantly raise the monthly carrying cost of a home.”
Based on broker insights and external data, as seen within the accompanying RE/MAX Housing Affordability Index, the average monthly mortgage amount across Canada ranges from approximately $950–$4,268 depending on regional income levels, and a 20 per cent down payment, amounting to an average percentage of Canadians’ monthly income from 11 per cent to upwards of 50 per cent. This is currently consistent with the majority of Canadians (72 per cent) who feel comfortable allocating less than 50 per cent of their household income towards housing costs, including mortgage payments.
However, concern over the ability to afford a home in the next two years due to rising prices remains, with nearly half (48 per cent) of Canadians sharing this sentiment. This concern significantly rises for younger Canadians (aged 18 – 34), with 71 per cent expressing concern. Unsurprisingly, over half (60 per cent) of this group agrees that a national housing strategy would cool the market and improve affordability.
“Creative solutions to achieve affordable home ownership will only take us so far, as will ‘stop-gap’ measures such as the mortgage stress test,” says Christopher Alexander, Chief Strategy Officer and Executive Vice-President, RE/MAX of Ontario–Atlantic Canada. “Without a national and locally supported strategy to significantly increase housing supply, prices will continue to rise. It shouldn’t be the burden of the next generation of homebuyers to figure out how to ‘get around’ the supply shortage and resulting affordability crisis when there are feasible, long-term solutions within reach.”
Buyer incentives and future affordability considerations
Amidst market challenges, the continued push behind the First-Time Home Buyer Incentive (FTHBI) has provided Canadians with an effective way to access a suitable down payment. Of those who recently bought their first home, 35 per cent took advantage of the FTHBI; however, of those who did not, 31 per cent were unaware of the incentive.
Incentives and regulations put in place to control or entice demand, while advantageous for some, are thought to not yet address some of the other affordability challenges that are currently at play.
“The common means of solving Canada’s real estate challenges, such as the introduction of the stress test, solely addresses demand rather than finding a way to ensure there are enough homes for all Canadians. Unfortunately, we still have yet to tackle the real issue behind housing affordability in Canada, which is supply. We share the RE/MAX opinion that addressing supply must be our top consideration moving forward,” say Ash and Alexander.
SOURCE RE/MAX Canada