Home ownership is not just a dream for any millennial; it is a daily reality because housing prices in Toronto. Despite the fact that real estate in the city proper is not attainable for most millennials, they have started investing elsewhere i.e. started buying in suburbs of Toronto and in areas which are outside the city proper.
Should millennials wait to buy a home? In all honesty, they shouldn’t because Canada is looking to open its borders allowing more than 110,000 immigrants to come to the country. Keeping this in mind, it is time to explore the reasons why millennials should enter Toronto’s real estate market instead of waiting.
The longer the millennials wait, the more they will need to pay
How can anyone be so sure that millennials should not wait? Especially in a city like Toronto where prices are spiralling out of hand; It is because not only have the city’s real estate prices been surging upwards sharply but also show no signs of stopping or screeching.
Toronto’s real estate prices have been rising in the following manner:
- Detached homes saw a price rise of 20.5% i.e. cost on average around C$ 1,716,272.
- Semi-detached homes saw a price rise of 16% i.e. costing around C$ 1,326,153.
- Prices of townhouses rose by 19% i.e. they cost on average C$ 945,983.
- Prices of condos rose by 6.3% i.e. their average price is C$ 716,976.
For all these kinds of properties, sales rose too by margins of 191.2%, 172.6%, 212.2% and 159.1% respectively.
The figures do sound surprising without much doubt. What is more surprising (and disturbing at the same time) is that these purchases took place during the third and most intensive wave of the COVID-19 pandemic.
Will these numbers fall after the end of the pandemic? No one is really sure but everyone is hoping for a reduction in prices.
According to most real estate professionals, those who are looking to enter the real estate market of good old T-Dot should do it now. Since government restrictions are now returning to more normal levels demand and prices are expected to accelerate further. Many operation and maintenance companies have also played big part in this role.
This issue can be further aggravated with a return to pre-pandemic levels of immigration approved by the Government of Canada.
Millennials are facing intense competition
When the travel restrictions are lifted, the Government of Canada will be set to welcome a whopping 400,000 immigrants to the country. Even more surprising (and concerning) is the fact that almost 40% of them will look to settle in the Greater Toronto Area (GTA).
When this happens, this will create unprecedented demand for housing. This will create gaps and crunches in supply, and hence, prices will go sky high.
Currently, millennials are at an advantage as less competition is present right now. Yet, the clock is ticking and time is slipping away.
Among the nations having the most vaccinations, Canada is leading the way. For the sake of economic reasons, its government is looking to open the borders again. This hence gives millennials quite a limited time-period to enter the real estate market.
Professionals from Toronto Regional Real Estate Board (TRREB) state that there has been a strong demand for housing ownership in most parts of the Greater Toronto Area (GTA). But in the absence of normal pace in growth of population, a downfall in sales was observed in the previous two months.
Yet the demand for housing in Toronto is still quite strong, despite the absence of a normal population growth in the city. So imagine what will take place once the borders are open and immigrants enter the city and yes, its housing market. Beneficial for some but disaster for many.
Hence, millennials are facing stiff competition.
Rising interest rates
The Bank of Canada (BoC) has kept the interest rates in a steady position at 0.25%. However, the rates are not expected to stay low for a long period of time.
According to executives at the Bank of Canada, both borrowers and lenders need to understand that interest rates will not always be at historically low levels. Also, those who wish to buy homes won’t be able to rely on rising values.
As a matter of fact, a strong economic recovery has forced the Bank of Canada to raise the timeline for a possible hike in interest rates up to 2022.
Millennials looking to purchase a home should now understand that mortgages are now going to be more expensive. Regardless of whether their choice lies in apartments, condos, lofts or homes; real estate is expensive in T-Dot.
The BoC is yet to raise the rates. However, the country’s commercial banks haven’t stopped from raising their own on the mortgages they offer.
As per the findings of experts at numerous financial firms, Canadian mortgage rates are starting to go high. This is happening for the first time before the COVID-19 pandemic began. It recently climbed by 25 basis points the previous week to 1.64%.
What will come in later after this is a horde of buyers doing their best to lock in rates and hence become pre-approved for mortgages. This is something millennials can look forward to in the coming year. Why? Because the BoC and commercial banks will raise the interest rates. This will make it more expensive to take out a mortgage for a home.
Plus, the credit stress test has become even tougher. This certainly makes it hard for millennials to qualify for a mortgage and pay it off. Those who qualify are perceived as filthy rich. In short, it is better to enter the market now as it is affordable as the rates are low. Playing the waiting game right now can be disastrous.
Rents will rise eventually
Rising rents mean rising prices. This will become worse once travel restrictions have been lifted. Apart from competition from immigrants (who will usually rent), millennials will need to stave off competition from investors wishing to turn their properties into Airbnb hotspots.
This hence raises the need for Ontarians owning a home. The COVID-19 pandemic has surely taught people of Ontario about the importance of their own living space. Everyone had to work from home during the pandemic.
Even though the pandemic is coming to an end, remote working is still a popular method of working. It is part of the new work from home movement. Condos with dens are becoming quite popular, and they are the only affordable property in the city proper.
When the pandemic forced people to telecommute, dens became less of a luxury and more of a functional need. Dens can be used as nurseries, storage spaces and bedrooms apart from home offices.
Millennials looking to work remotely can surely benefit from buying a condo with a den. It won’t be just any investment in real estate. Rather it is an investment in both their families and careers.
Rising home prices are an obstacle for millennials looking to buy their homes. The lifting of travel restrictions and rise in interest rates are two challenges they need to overcome. Mortgages are going to become expensive because of the government allowing immigration. This will lead to demand outstripping supply.
Hence, this is why millennials should step forward to consult with a top-notch and experienced real estate agent.