Housing market ‘extremely discouraging’ for first-time buyers

Many experts believed that the real estate market was cooling. But as the spring buying season begins, it’s clear that’s not true.

According to the Canadian Real Estate Association, the national average price for a home in March was $401,419, an increase of six per cent in year-over-year comparisons.

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While the market defies predictions, one thing’s for sure: The continued rise of Canadian home prices is putting a damper on the hopes and dreams of first-time buyers.

Sarah Wiseberg, who rents a condo in Toronto’s pricey downtown core, knows this only too well.

"I've been searching for almost a year, and I think it’s extremely discouraging for a first-time homebuyer, particularly if they are looking for something other than a 500-square-foot condo," Wiseberg said.

Agata Pietrzak, a real estate broker for Remax Condos Plus in Toronto, says there are many buyers entering the housing market, but not enough supply to meet that demand.

"In terms of single-family homes, there is a lack of inventory, and that usually results in a bidding war," Pietrzak said. "It is almost unimaginable to buy a house at list price now."

In some instances, Pietrzak says she has seen first-time homebuyers with small families resort to condos, because prices for houses were way beyond their budget.

The risk of bidding wars

In a recent report released by BMO Financial, the national average budget for first-time buyers has increased to $316,000, with Vancouver topping the list at $506,500. Toronto comes in at $408,300 and Calgary at $363,400.

Wiseberg, who says she is willing to spend between $500,000 and $600,000 for her first home, entered the housing market after abandoning the idea of spending hundreds of thousands on a condo. She couldn't believe the competition in the housing market.

Every house that I’ve gone to easily goes $100,000 over the asking price- Sarah Wiseberg, first-time buyer looking to purchase in Toronto

"Every house that I’ve gone to easily goes $100,000 over the asking price," Wiseberg said. "I definitely do not want to enter a bidding war, because I don’t want to be cash-poor.”

The BMO Financial report found that 60 per cent of first-time buyers in Canada are delaying purchases, and 39 per cent of those cite high prices as the main reason.

But not all is doom and gloom. Several cities across the country have seen price drops, including Montreal, Winnipeg and Regina.

Broker and manager Daniel Wachniak from Royal LePage Dynamic in Winnipeg says the city’s housing market is fairly balanced, but specifies other factors are at play when it comes to pricing. He said the prolonged winter is one factor that explains the recent price decrease in Winnipeg.

"You have to look at our weather and the time of year," Wachniak said. "The houses that probably sold [in late winter] were more open to negotiations than houses being listed right now."

When it comes to bidding wars, Wachniak said he has seen them go as high as $80,000 over asking price.

"We had different spikes, ranging from $5,000 to $80,000, where a house in a certain area not usually seeing listings results in a bigger demand," he said.

'Getting squeezed'

Given BMO’s recent decision to cut its five-year fixed mortgage rate to 2.99 per cent, Pietrzak said it’s a good time to buy, especially for first-timers.

"I’m working with several first-time buyers right now and they are becoming more confident in the market and with the rates available," she said.

Kelvin Mangaroo, founder of Ratesupermarket.ca, which allows Canadians to compare mortgage rates, has a different take. He sees first-time buyers in cities such as Toronto getting priced out of the market.

"Many first-time homebuyers in Toronto are getting squeezed," Mangaroo said. "A lot of the mortgage rules that have happened in the last couple years have made it harder to get a mortgage."

In 2012, the federal government reduced the maximum amortization period for a mortgage to 30 years. It has also tightened other regulations, like putting a limit on the percentage of their gross household income a homebuyer can spend on home expenses in order to qualify for a mortgage.

These factors, along with a short supply of houses, especially in urban centres, is having a negative effect on buyers, says Mangaroo.

The disparity is evident in the numbers: The average budget for first-time buyers in Toronto stands at $408,300, but the average house price in Toronto is $546,597.

Buyers unhappy with the condo lifestyle are finding their options increasingly limited.

Preferring a house with space and character, Sarah Wiseberg has her eyes set on a home in one of Toronto’s older neighbourhoods. She found a couple of houses with potential, but they sold before she could even make an offer.

While prices may grow further out of reach, Wiseberg said she is reluctant to turn to her parents for financial assistance. She’s determined to do it on her own.

"I think whatever is meant to be will be,” she said. "If I find a place by June, amazing. If I don't, then I'm fine with renting for another year."