Can We Afford the Growing Cost of Housing??

Thursday, July 7, 2022

April-13-2022

It’s hard to ignore the skyrocketing cost of property in Canada. The Canadian Real Estate Association says that the average price of a home in Canada has increased by 52% over the last two years.

And things are no different anywhere in Ontario. Housing prices in March across Ontario rose by 18% and by 11.2% across the country. In fast the average price of a home in Canada has increased by 52% over the last two years.

Right in my hometown, the Housing Price Index (HPI) in Kitchener Waterloo increased by 36.8% between February 2021 and February 2022.

Have things topped out? Maybe they have. Last Wednesday, the day before the recent federal budget, there was a story in the The Record describing how housing prices had dropped over ten percent in March.

What Should Someone Hoping to Enter the Real Estate Market Think?

Maybe you own a house and speculate about how much it’s worth, compared to one or two years ago. Or even a few months ago.

Maybe you’re hoping to buy a home or know someone who is hoping to by a home. Are current trends pricing you out of the market? Is there anyway you can afford the million dollars that the average house in Kitchener Waterloo is now valued at?

It’s almost impossible to keep up with the escalating estate prices in the region. At this point it’s impossible to predict how prices are going to go over the near future.

And it’s not like you can hunker down in your rental apartment and wait it out. Average rents in KW are also up – around 15% in the last year as well.

So where do we go from here? Well, that’s exactly what people were wondering as we watched federal Finance Minister Chrystia Freeland present the 2022 budget on Thursday.

Efforts to Offer Housing Affordability in the Federal Budget

Provincial and municipal governments across the country (including KW) are lauding the efforts described in the 2022 federal budget to address housing affordability. The measures are being described as positive steps forward but are accompanied by a wish to see how details unfold.

The federal government has announced additional measures to address real estate speculators and foreign buyers. But this is considered a minor issue in the overall problem in the Canadian real estate market.

More Homes Needed

Most agree that the real problem is the lack of actual housing stock across the country. To address this the federal government has announced a $4 billion housing accelerator fund to encourage the construction of an additional 100,000 houses across the country over the next five years. On top of that they are putting $1.5 billion into their social housing efforts and $3.9 billion to repair existing affordable housing units.

FHSA? What’s That?

Another measure getting lots attention is the new Tax-Free First Home Savings Account (FHSA). First-time buyers can save up to $8,000 a year, tax-free to a maximum of $40,000 toward the purchase of their first home. While some are happy to see the new tool in place, other some are criticizing it as terribly inadequate when a 20% down payment on a million-dollar house (the average cost of a home in KW) is five time that, at $200,000. Others suggest it will simply drive up the price of houses as more money becomes available to home purchasers.

Mortgage Rates: Something We’re All Familiar With

By the time you read this the Bank of Canada may have already announced a rate hike. Most analysts are predicting a rise of 50 basis points. Others are suggesting they’ll stay put. We’ll have to see.

As you well know, Canadian’s are witnessing high levels of inflation. A trip to grocery store will make that clear.

Interest rates are a major tool in any efforts to cool inflation. And interest rates play an obvious role in the mortgages that new home buyers can afford to take out when looking for a home. So, higher interest rates generally lead to lower size mortgages. But then you already knew that.

What Does the Future Hold?

As we prepare for a post COVID world (or not) we are also trying to understand a world where working-from-home is a permanent option. This has had a profound affect on “cottage country” properties and on communities outside the immediate GTA.

So much has changed in the last two years. It’s impossible to know what impact these changes are going to have in the long run. All we can do is wait it out and see if the combination of the recent federal budget and rising interest rates have an impact on the housing market.