In a surprising result of a recent survey conducted by Scotiabank, it was revealed that approximately 20% of young Canadians, aged 18 to 24, said that the pandemic has actually accelerated their plans for purchasing their home or investment property.
One reason could be that the lockdown has encouraged people confined to small living spaces to formulate interest in upgrading to larger and more functional spaces.
John Webster, Head of Real Estate Secured Lending and Scotia Mortgage Authority at Scotiabank stated in a release, “The pandemic has caused many Canadians to turn their living rooms into classrooms, their dining rooms into offices, and their basements into home gyms, this is motivating many to consider investing more in their current homes or re-evaluating their living spaces altogether.”
However, the key driving force of this outlook and interest in buying homes during these times seems to be historically low interest rates. In fact, the interest rates have been falling so much that despite soaring home prices, homes have remained affordable for many buyers.
For example, compared to a person who purchased a mortgage of $289,000 in January, purchasing the same mortgage today could save an amount of $13,000 due to the recent plunge in interest rates.
That is a reduction of 100 basis points from 2.84% in January to 1.84% today, resulting in approximately $142 in monthly mortgage savings on a 5-year fixed mortgage.
Even if the mortgage amount increased to $299,000 as a result of the increase in home prices, buyers would still be ahead by $2,689 over the 5-year term with today’s low rates.
Additionally, younger Canadians are likely expecting a drop in home prices along with the drop in interest rates.
In fact, out of the total number of respondents that believed the pandemic has accelerated their home buying plans, 33% stated that they are waiting for prices to drop before making their purchase.
The survey also found an inversely proportional relationship between the age of the respondents and the number of those who expect a drop in house prices:
Additionally, the First-Time Home Buyer Incentive, a shared equity mortgage with the Government of Canada helps qualified first-time home-buyers reduce their monthly mortgage payments considerably.
Although there might be uncertainties for the Canadian real estate market, young Canadians are undeterred and have become more optimistic about the prospect of purchasing their homes. As discussed in this article, lockdowns and work from home culture have made it imperative for those who are currently confined to small living spaces to find larger and more functional living space. The most important factor is the all-time low interest rates which have made it possible for many buyers to transform their dream of buying a home into reality. So, studies have showcased that young Canadians are eager to purchase their first homes now despite rising real estate prices as they seem to be at the right time and place.
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