In our recent survey at PolicyMe , 86 per cent of Canadians said they face significant barriers to homeownership. And 70 per cent of Canadians believe that Canada is becoming unaffordable.
An overwhelming majority of Canadians are feeling the pinch when it comes to the bills, maintaining their lifestyles and buying a home.
But despite overheated market conditions and the economic challenges caused by the pandemic, 39 per cent of renters still reported they want to buy a home within five years, with six per cent hoping to reach that goal within the next year. However, record-high house prices in many Canadian markets and rising inflation will continue to create barriers for those wanting to buy a home.
After asking over 1,500 Canadians to weigh in on their financial wins, challenges and stresses, we’ve picked up some key insights on how Canadians feel about their financial future and what they think about real estate.
The ongoing pandemic has made a seismic shift in the everyday lives of Canadians. Stable employment can be hard to secure, inflation is steadily increasing and supply chain problems threaten to wreak havoc on the cost of goods and services.
Without a healthy financial foundation, more Canadians will find it difficult to achieve their dreams of buying a home. Initially, some experts had assumed the pandemic-induced economic slowdown would cool down the housing market as well. Many hopeful buyers were ready to capitalize on the opportunity. Instead, the real estate market reached new highs as Canadians sought out more spacious living conditions, seeking multipurpose homes that could serve as a refuge from the uncertainties outside.
According to three-quarters of Canadian renters, the lack of affordable home options and difficulty in saving for a down payment are the primary reasons they have not yet purchased a home.
Let’s take a closer look at these two issues.
The average house price in Canada was well over $720,000 in late 2021. It’s not a stretch to see how 61 per cent of Canadians cited a lack of affordable home options on the market as the most significant barrier they faced in becoming homeowners.
Their perception lines up with reality. According to research done by Oxford Economics in mid-2021, homes are about a third more expensive than the median Canadian income could afford. Home affordability has been an issue, particularly in urban areas of British Columbia and Ontario, for many years, due to limited supply and historically low interest rates driving demand.
More than ever, homes have to serve multiple purposes, acting as an office, classroom, gym and entertainment centre. With the pandemic keeping people home, it’s fueling demand for more spacious living conditions, resulting in a significant spike in already high prices in the past two years.
However, it’s household income that dictates, to a large part, whether Canadians will continue to pursue homeownership. Forty-eight per cent of those making between $50,000 and $100,000 indicated that they’ll keep house-hunting during our current red-hot market conditions, compared to the 25 per cent with incomes less than $50,000.
While the Canadian household savings rate was low, hovering around three per cent before the pandemic, we’ve turned things around.
For some Canadians, lockdown measures made them better savers. Without the opportunity to go out socially or pick up lunch at work, 45 per cent of respondents were able to pad their savings accounts between 2020 and 2021, putting a whopping 20 per cent of their net income aside.
Good news for savers: interest rates are likely to go up this year, but inflation and the corresponding cost increase for goods and services may end up negating any gains. Unfortunately, wages have stayed stagnant and pandemic-triggered layoffs have made a negative and stressful impact on many families.
These factors make it exceedingly difficult to save for a down payment. Using the average house price of $720,000 as a set point, a down payment can be as high as $180,000.
To help pay, it’s estimated that about 60 per cent of millennial homebuyers receive some financial assistance from family members. Unfortunately, while this allows some lucky individuals to get on the real estate ladder, it systemically perpetuates high home prices overall.
A lack of confidence in their present and future financial standing can keep Canadians from achieving homeownership. While a smaller down payment could be the right choice for some prospective buyers, they will need clear-headed advice to help weigh the benefits and risks of taking this route.
Canadians still have a strong appetite for real estate. But they face two significant barriers:
- A lack of affordable options
- Difficulty saving for a down payment
Despite this, almost 40 per cent of renters remain optimistic that they’ll be able to do so within the next five years.
Ultimately, Canadians are still eager for options to make buying a home a reality. Wise advice, creative solutions and well-reasoned compromise can help them reach their goals.
Laura McKay is COO & co-founder of PolicyMe. Laura brings her experience in insurance and strategic operations as a management consultant at Oliver Wyman. She also launched a successful initiative for the World Economic Forum focusing on innovation in insurance – working with insurers, tech pioneers and policymakers.
