Skip to content

Making the right moves in Canada’s record-breaking real estate market.

The dream of homeownership is alive in Canada, with more Canadians than ever before eager to put a down payment on a new place of their own, despite skyrocketing housing prices. The Canadian Real Estate Association reported that the average home price reached $688,208 in May 2021, up 38.4% from the previous year when houses were going for an average of $497,189.

As far as home sales, March 2021 had almost 14,000 more sales than the record set in July 2020. That number slightly cooled over April and May 2021, with 56,000 homes sold in the latter month. Still, that number was twice as high as it was the previous May. But, in June 2021, home sales rebounded to record highs, with 76,259 homes sold that month, hitting the highest level of activity during any month in history.

To understand how to best dip into these record-breaking real-estate trends, below are answers to some of your burning questions concerning this hot housing market:

What’s driving Canada’s real estate changes?

Interest rates are at historic lows and there’s no imminent giant rise projected for the future, which has made borrowing more affordable for a lot of Canadians. According to Brendan Powell, broker of record with bspoke Realty Inc.’s BREL Team, “There’s a lot of demand these days, and it’s mostly due to low rates.”

That faith in interest rates has also improved consumer confidence. “If people think that rates are going to spike, the economy is going to tank, or they’re going to lose their jobs, they’d be more conservative,” says Powell. “Right now, the overwhelming sentiment is one of optimism.”

More and more Canadians have also been moving out of metro areas like Toronto and Vancouver in search of additional space now that they’ve been working from and staying more at home. In the Greater Toronto Area, for instance, the suburban market has exploded and some of the biggest price gains have been with detached houses outside the main core. “A big part of our business has been people who are making big moves that might not have happened without the pandemic, such as selling a small condo and making the jump to a house in the suburbs or even the country,” says Powell.

What’s the outlook for prospective homeowners?

When it comes to major Canadian cities where housing prices are the most expensive, it’s getting harder and harder for first-time, would-be homeowners to enter the market. “When you’ve got a limited amount of space and an increasing population, the natural thing to happen is that space becomes more expensive. And, eventually, it gets to that high level,” Powell says.

In cities like New York and Tokyo, the average person doesn’t expect to buy a home. That’s likely where we may be headed when it comes to Canada’s major cities, Powell says. This is more of an urban trend, though, than it is a rural or suburban one.

However, if you already own a home in an expensive area or are living in a high-rent urban center, now might be the right time to look outside of the big cities for more affordable digs and space, especially in provinces with lower price growth—and perhaps make a return on your original investment. For instance, in Alberta, Saskatchewan, Newfoundland, and Labrador, price growth hovers only around 10%; but in areas like Ontario and New Brunswick, it’s around 30%.

What will it be like to get a mortgage going forward?

In May 2021, the Bank of Canada (BoC) expressed concern about the rapid rise of housing prices and household debt. In particular, BoC noted that many homeowners have taken on large mortgages when compared with their earnings, which could leave them in a tight spot in the case of job loss or rising interest rates.

In response, the Office of the Superintendent of Financial Institutions (OSFI) launched a stricter mortgage stress test that came into effect on June 1, 2021. A mortgage stress test is typically a hypothetical test a bank performs so they can rest assured that homeowners will still be able to pay their mortgage if they face either personal hardship or rising interest rates.

Going forward, OSFI says the mortgage stress test’s qualifying rate on uninsured mortgages will be either 2 percentage points above the contract rate or 5.25%, whichever is higher of the two.

What if my mortgage is insured?

The federal government says it’s going to require the same qualifying rates when it comes to stress testing insured mortgages—either 2 percentage points above the contract rate or 5.25%, whichever is higher. “The government can play around with stress testing to reduce risk in the market,” Powell says. “They’re trying to future-proof all of the household debt that people may be taking on and want to make sure it’s not a house of cards that will topple as soon as interest rates go up.”

For example, let’s say the best mortgage rate in Canada is 2.49% and the qualifying rate is 5.25%, and you’re a Toronto buyer with a $100,000 salary. According to Coast Capital’s mortgage calculator, if you make a 10% down payment and get a five-year fixed mortgage rate of 2.49% amortized over 25 years, you would qualify for a net mortgage amount of $401,948.09 under a 5.25% qualifying rate.

In conclusion, mortgages may not be easier to obtain, at least in the short term, considering the wide range of challenges homebuyers can face, such as rapidly rising home prices, housing supply shortages, competitive bidding, and high debt. The newer mortgage stringency could throw up a few more hurdles during the process. Your best defence is to fully understand and prepare yourself for the homebuying journey and speak to your financial advisor to make sure you’re financially ready to begin.

To see what home prices may be within your reach under new mortgage stress test guidelines, check out Coast Capital’s online mortgage calculator.

Most popular in Managing Your Money

Managing Your Money

What to do with your tax refund

A refund is basically free money, right? Once you receive your tax return, your knee-jerk reaction may be to spend it on a new spring wardrobe or hop on a…

Managing Your Money

Money management for kids

You teach them manners, how to tie their shoes, and how to ride a bike. But can you really teach your kids the value of money? Short answer? Yes. And…

Teaching Money to Kids
Managing Your Money

RRSP vs TFSA. Which is better for you?

The great debate: TFSA vs RRSP With the RRSP contribution deadline just around the corner, it’s important to know about all your savings options. Today we break down which savings…