BMO reveals where first-time purchasers plan to buy

by Neil Sharma on 26 Apr 2021

Nearly half of first-time homebuyers intend on purchasing homes in either suburbs or small cities, indicated a new survey from BMO.

Forty-seven percent of Canadian respondents are eyeing suburban homes—in both Ontario and British Columbia, the figure grew to 53%—with 44% citing affordability, and 41% wanting more space.

The survey, which was conducted by Pollara Strategic Insights, revealed that 30% preferred living in major city centres, with 27% choosing Toronto, 15% Vancouver, and 11% apiece for both Montreal and Calgary. Forty-nine percent of respondents wanted to remain in their current area, while another 49% wanted to stay close to work.

"With remote work expected to continue over the long term, first-time homebuyers have the flexibility to look for a home that isn't necessarily next door to where they work," said Hassan Pirnia, BMO’s head of personal lending and home financing products. "Between this added work flexibility and price appreciation in some major cities, the expectation is that we will continue to see a push into the suburbs.”

Small cities outside of major urban cores have had an influx of newcomers in the last year, including many first-time buyers whose luck might have run out after months of runaway prices. In Barrie, the average sale price of a home increased by 32.6% year-over-year in March to $714,654, while Simcoe County home sale prices rose by 46.2% to $783,385 during that period. In Toronto, the average sale price increased by 21.6% year-on-year to $1,097,565, signifying frenetic activity in the surrounding area.

“Barrie has seen major appreciation in just one year. In places like Hamilton, Windsor, Guelph, St. Catharines and London, we’re seeing a lot of action because millennials who were renting or owned a downtown Toronto condo and needed to be near work obviously don’t have to anymore. They really don’t want a place where they only go to crash because now they’re stuck in their homes all the time,” said Laura Martin, COO of Matrix Mortgage Global in Toronto.

“The only way to get an advantage, in terms of space, even a yard and multiple bedrooms, as well as enough room for a home office, is to move out of the city. A townhouse in the City of Toronto now costs over $960,000, but you can get a very sizable home in London or Guelph for $400,000.”

The BMO survey also noted that 61% of first-time homebuyers expressed interest in purchasing a detached home, while 32% were looking for townhouses, 28% preferred semi-detached houses, and 27% were planning to buy condos.

But ground-related housing might be an ambitious purchase for a first-time buyer who doesn’t already have home equity to leverage, especially in light of the incoming mortgage stress test, which will essentially eradicate the affordability gains that were made when the Bank of Canada plunged interest rates in the wake of the pandemic. Martin says that the monthly payment on a $700,000 mortgage at 1.5% is about $2,000, but buyers now have to qualify for monthly payments of $3,000 because they’re being stress tested at 5.25%.

“First-time buyers are most likely doing this with help from the bank of mom and dad as cosigners. Even Gen-Xers are getting help from the bank of mom and dad,” she said. “I can see first-time homebuyers in the GTA buying preconstruction condos. They can still get them in the Upper Beaches, borderline Scarborough, in the upper $400,000s if they don’t mind starting off with a smaller amount of space.”

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