//Google site Verification 2021 could be banner year for this housing type

2021 could be banner year for this housing type

by Neil Sharma29 Dec 2020

Sigh a breath of relief, 2020 is almost in the rear-view mirror!

And while a new year typically renews optimism—or in this case, what’s left of it—2021 will bring especially good news for one cohort of homebuyers.

“I think it will be easier for first-time homebuyers to get into the market in 2021,” said James Laird, president of CanWise Financial and co-founder of Ratehub.ca. “First-time homebuyers will have a limited opportunity to enter the housing market, but not in the single-family detached market; it will almost certainly be in the urban condo market. Condos will soften for the first half of the year, but they will stabilize in the second half of the year.”

In other words, the time to act is nigh.

“The last several years, the condo market has been on fire, making it difficult for first-time buyers, but it’s not right now,” added Laird. “It’s better to enter it when it’s weak than when it’s on fire, depending on the person’s life situation, of course.”

First-time buyers in Vancouver and Toronto have been short-shrifted in recent years by runaway housing prices, including in the market’s starter home segment, and while 2020 has been a proverbial kick in our collective teeth, it has proffered opportunity to these buyers. If first-time buyers act quickly heading into 2021 and get prequalified, their prospects will be brighter.

“When you participate in a competitive housing market, you have to be well prepared and organized, which means having a preapproval, and understanding what you can qualify for might allow you to make an offer without financing conditions and that could help you win a bidding war,” said Laird, adding that the door to urban condo markets, like Toronto’s, is wide open.

But that door will begin closing by the second half of 2021. The widening gap between ground-related homes and condos will broaden to the point that the latter will, as they were a few years ago, be people’s only vehicle towards homeownership. Furthermore, just because we’re in the throes of a pandemic and interest rates have fallen—in fact, because rates have plummeted—affordability woes could become more pronounced next year.

“My expectation is fixed rates will be a little higher at the end of 2021 than at the start of it,” said Laird. “As the vaccine rolls out and we return closer to the ‘old world,’ which will bring optimism, bond yields will rise above their current rock bottom levels and cause fixed rates to increase. And because the difference between the average price of a condo and average price of a house is growing, once it reaches a certain level a lot of demand will return to the condo market.”

Timing is key, as well. As the 2020 spring lockdown taught us, minimal market activity created an opening that few took advantage of, and by summer, when Canadians adjusted to the new pandemic-induced normal, the market resumed its barnburner status.

The wild card in 2021 is the COVID-19 vaccine—how quickly it’s distributed and, of course, its efficacy. It will nevertheless take much, if not all, of the upcoming year for normalcy to resume, but, again, if this year has been any indication, the housing market isn’t listening.

But 2021 should also bring other encouraging news, says Laura Martin, chief operating officer of Matrix Mortgage Global. From Ontario’s Fair Housing Plan to the Office of the Superintendent of Financial Institution’s B-20 regulatory regime, to even CMHC’s additional stringent qualifications earlier this year, the last three years brimmed with regulation, but buyers should breathe another sigh of relief and expect respite moving forward.

And interest rates will remain at historic lows to buoy the economy, too, added Martin.

“I don’t think there’s going to be any regulatory changes, which have been the main disruptions for a year or two,” she said, noting that homeowners had to qualify at around 4.29% because of the 200-basis point stress test introduced in January 2018. Howvever, not much has changed.

“If your rate is 1.39%, and that’s not going to change for five years, you still have to qualify at 4.29%, even if you are putting more than 20% down.”

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