5 things you need to know about buying a home

Buying a home at the best of times is serious business. But as we approach 2023, with the worst of COVID in our rearview mirror, we’re now dealing with higher interest rates, concerns about the economy, inflation, demographic trends… It’s all very serious stuff, and for some, perplexing and even intimidating. It’s a lot for homebuyers to consider.

Let’s take a look at five key factors you need to be aware of.

1. Interest rates and inflation

The Bank of Canada has increased its influential overnight rate target a number of times over the last year, in an effort to curb high inflation. It seems to be working, but the rate increases have imparted a sense of caution among many buyers, and therefore a cooling effect on homebuying activity.

Many experts believe BoC may introduce another rate hike in its next announcement on Dec. 7, but following that, say the second quarter of next year, we could see an end to this trend.

“At that point, I think you will see the Bank of Canada pause and evaluate the impact on the economy in the following months,” Ted Tsiakopoulos, economist, best-selling author and sought-after speaker, told Condo Life. As rates begin to decline, and combined with the limited housing supply, we could see a correction to the price softening we’ve seen over the last year.

2. Homes are a little cheaper – for now

The biggest challenge for many prospective homebuyers is saving for a down payment. With some home prices experiencing downward pressure, buyers today need less money to make a down payment. With the minimum down payment for homes of less than $1 million being five per cent, a home that was $600,000 in February may cost $540,000 today. That five-per-cent down payment, previously $30,000, is now $27,000.

“So, although rates are rising, housing prices are steadily declining, which means saving for a down payment has become easier for potential buyers in the current market,” says Jesse Abrams, co-founder at Homewise, a mortgage advisory and brokerage firm.

Key message is – for now – we still face a well-documented shortage of new housing in the province that will take time to address. And this leads us to our
next point…

3. More homes built faster

On Nov. 28, the More Homes Built Faster Act was given royal ascent, supporting the government’s efforts to tackle the housing supply crisis and get 1.5 million homes built over the next 10 years. Controversial though it may be, More Homes Built Faster is intended to remove unnecessary costs and cut through red tape and other bottlenecks that stand in the way of new homes being built.

Key actions in the plan include:

• Freezing and reducing government fees to support the construction of new homes and reduce the costs of housing, particularly affordable and not-for-profit housing, inclusionary zoning units and purpose-built rentals.
• Creating a new attainable housing program to drive the development of housing across all regions of Ontario.
• Protecting new-home buyers by increasing consumer protection measures, and consulting on ways to help more renters become homeowners.

The plan also supports the development of “gentle density,” which will create more rental housing while minimizing the impact on existing neighbourhoods. These changes will give most property owners the right to build up to three units on their land – including a basement apartment or a laneway home – without lengthy planning approvals or development charges.

More Homes Built Faster may not be perfect, and there may still be some opposition even though the bill has been approved, but these are actions we need to address the housing crisis in Ontario.

4. Think long-term and local

Looking at Royal LePage’s House Price Survey for the third quarter of 2022, home prices are being affected by current economic challenges. The aggregate price of a home in Canada decreased 4.9 per cent in the third quarter, the second consecutive quarterly decline. However, prices increased 3.3 per cent year-over-year to $774,900.

Royal LePage is also forecasting that the aggregate price of a home in Canada will decline 0.5 per cent in the fourth quarter of 2022, compared to the same quarter last year.

But those are Canada-wide numbers, and when you’re buying a home, you’re not buying a national market. Real estate is local – hyper local, in fact.

The aggregate price of a home in the GTA decreased 5.9 per cent on a quarterly basis, according to Royal LePage – the second consecutive quarterly decline. But on a year-over-year basis, the price increased 2.1 per cent to $1.09 million, in the third quarter of 2022.

The median price of a single-family detached home decreased 0.6 per cent year-over-year to $1.34 million, following record-high price gains in 2021. Meanwhile, the median condo price increased 8.7 per cent year-over-year to $701,300.

And remember what we wrote about real estate being local, and looking at the long term? Aggregate home prices in Burlington, for example, are down 9.1 per cent for the third quarter, but up 5.4 per cent year-over-year.

Hamilton, down 8.1 and up 4.5 per cent. Vaughan, down 5.2 per cent for the quarter, but up 6.5 year-over-year.

Royal LePage does expect home prices to level off through the remainder of this year, with aggregate prices decreasing 3.5 per cent in the fourth quarter, compared to the same quarter last year.

This all illustrates that real estate is not just about location, location, location. Especially during these times, it’s important to look at your local market over the long term. And in this context, the GTA is well positioned.

And for what it’s worth, the Building Industry and Land Development Association (BILD) is already noting a small increase in activity, with the GTA new home market seeing a slight pick-up in October.

5. Housing a permanent election issue

It may have been the case in some parts of Canada before, but our last round of federal, provincial and even municipal elections proves that housing is permanently on the agendas of our political leaders.

In the Oct. 24 municipal elections, for example. housing supply – specifically, the development approval processes of the province’s 400-plus municipalities – was under the microscope.

Why is this so important? “Municipal approval timelines for new housing in the GTA are among the worst of major municipalities across Canada, and add significant costs to new home purchases,” according to a municipal benchmarking study conducted for BILD by Altus Group, a market-leading intelligence service provider to the global commercial real estate industry.

BILD estimates the average delay in approvals adds approximately $50,000 in cost to an 800-sq.-ft. condo, and $100,000 to the cost of a single-family home.

“All of us – voters, the industry, municipal governments, the provincial government and other regulatory authorities – must take collaborative action to boldly address housing supply and affordability,” says BILD President and CEO Dave Wilkes. “It’s the only way to fix the housing challenges in our region and our province, secure our economic competitiveness and address generational inequity brought about by our housing crisis.”

Municipal governments really matter when it comes to solving our housing supply issue, and to your bottom line.

And this is where More Homes Built Faster comes in, imperfect though it may be.