Hunting for real estate? Expect to dig deeper into your pocketbook to end up with a smaller house. According to a recent Bank of Montreal survey, Canadians are realizing they will need to spend more to buy their next home. The recently released BMO Fall Home-Buying Report summarizes the results of their latest poll. The September survey polled Canadians who are likely to buy a home within the next five years.
Many potential home buyers are getting quite the reality check as they discover their expectations don’t quite align with the market. Housing prices have risen significantly in Canada over the last several years: "As prices rise, house-hunters need to ensure their savings are keeping pace, especially first time buyers who don't have the leverage of a current house in the market,” explained Martin Nel, Vice President of Personal Banking Products at BMO Bank of Montreal.
Of prospective real estate buyers surveyed, 43 percent now anticipate spending more on a house than when they first started looking. Their new budgets are 21 percent higher, which represents an average increase of $83,556. Those in Toronto expect to spend more than anywhere else in Canada, and foresee paying an extra $106,883 over their original target price. Montrealers now expect to spend $48,883 more, Calgarians increased their budget by an average $89,389, and Vancouverites plan to spend $81,095 more than they originally intended.
When asked why they increased their budget, 85 percent said prices are higher than when they started looking. A solid 81 percent also feel they now have a better understanding of current market prices. That said, one positive reason offered by 56 percent of prospective buyers is they now have a bigger down payment saved up than previously estimated.
Of those surveyed, only 5 percent of Canadians now expect to spend less on their next home than when they first started house hunting.
But the reality check darkens from there – 55 percent of those polled also believe they will need to buy a smaller house than originally planned, even though they increased their budget. For this group, gleaming condos and expansive detached homes were the most popular choices when first looking to buy. Many are now shifting to smaller or less expensive choices such as townhouses and semi-detached homes.
Sal Guatieri, Senior Economist at BMO Capital Markets, commented on this trend: "By shifting toward semis and townhomes and away from detached and condos, buyers appear to want their cake and eat it too – a backyard for the kids to play in, but also something that won't break the budget, notably in Vancouver and Toronto."
Potential buyers listed different reasons for changing what type of home they were looking to buy. Factors such as price and availability played a role in many buyers expanding their search criteria. After exploring their top choice and viewing what was currently on the market, 61 percent were forced to see what other option may meet their housing needs.
The majority would now choose a freehold home over a condo if they found one within their budget. With so many new and planned condo projects, 76 percent of buyers are concerned this market is overdeveloped and won’t be able to maintain its value as well as other housing options.
It’s not surprising that the gap between buyers’ expectations and the reality of the current market is largest in the country’s major cities. With more and more detached homes selling for over $1 million in large urban centres and Canada’s continued real estate market boom, many buyers are being priced right out of the market. More current homeowners are choosing to stay put, which means less homes for sale. This creates an increase in demand, which means frenzied buyers, multiple bids and higher sale prices.
Were you unfortunately given a reality check when it came to housing prices in your city? Did you spend more than planned for your current home? Share your experience with us below!