Until the reality of housing affordability in Ottawa locked her out, Amber Westfall thought she was well on her way to home ownership.
She and her partner, both first-time buyers, had a pre-approved mortgage. They had enough saved for a 20-per-cent down payment. They were prepared to move up to an hour outside Ottawa to land a less expensive home.
But, like a growing number of frustrated first-time buyers here and across the country, home ownership has begun to look like a pipe dream.
“We feel like we couldn’t have picked a worse time and now we feel really stuck,” says Westfall, who’s a self-employed herbalist in her mid-40s. She began casually looking for a resale home in 2018 and ramped up the search last August.
Since 2018 — and especially last year — she’s seen prices escalate with staggering speed. “We started thinking around $350,000. That quickly went up to $400,000, then $450,000 and now we’re just hoping we can get something under $500,000, and we don’t even know if that’s possible.”
“It’s like the listing price is a suggestion.”
Westfall’s retired mother is also involved. She sold her home in Barrie last year, planning to help Amber and her partner, who works in property management, buy a home where she would also live and age in place. Now all three are in a rental unit, wondering what the future holds.
Earlier this year, they put in an offer on a home near Perth listed at $399,000. It sold for $552,000, an example of how soaring prices are reaching smaller centres as buyers, driven by the allure of less expensive homes and more space, are migrating to markets outside the city.
Another home they looked at went for $180,000 over asking.
“It’s like the listing price is a suggestion,” says Westfall. “When we look at a listing, it’s like, ‘Can we pay $100,000 more?’… We’re out of our depth and in a situation we really weren’t prepared for.”
How the current housing market got here
It seems as if there are almost as many reasons for what’s now often termed a housing crisis in Canada as there are would-be first-time buyers.
Vancouver and Toronto have long exceeded the reach of many buyers. By contrast, thanks to a stable market and relatively low prices, housing affordability in Ottawa hasn’t usually been considered much of an issue.
By 2018, however, resale inventory was tightening in Ottawa even as price increases remained within the four- to five-per-cent range typical for the city. That started to change in 2019, when inventory continued to shrink and prices grew nine per cent, with average prices for the first time exceeding $500,000 during several months.
In the new-home market, 2018 saw unsatisfied demand for townhomes and some insiders warning about growing threats to housing affordability in Ottawa. That morphed into steep price increases in 2019; for example, in-demand towns were up 12 per cent compared to the previous year, commanding an average $434,030.
Then, in 2020, the pandemic hit the housing market. Suddenly, Ottawa residents, like those in many cities, found themselves working from home and wanting more square footage and green space. That put even more pressure on an already tight inventory and heightened the pent-up demand for both new and resale homes. In the new-home sector, work-site health restrictions along with material shortages and price increases created further obstacles to meeting demand.
A kind of mass hysteria descended on the housing market, exacerbated by the anxiety we all felt because of COVID and the temptation to take advantage of record-low interest rates along with the savings some had accrued during lockdowns.
Resale buyers, afflicted with the fear of missing out, joined a panic-driven rush to make an offer. Bidding wars erupted. And homes, as Westfall and others discovered, were often selling for far over the asking price.
The fallout on housing affordability in Ottawa was inevitable.
In 2020, resale prices jumped 20 per cent for non-condo properties, hitting an unprecedented average of $582,267, while condos increased 19 per cent to over $361,000.
In the new-build market, single-family homes shot up 16 per cent, to $708,665, while towns, in high demand because of their lower price, skyrocketed 19 per cent to $517,000.
The pricing surge continues this year, further hindering housing affordability in Ottawa.
As of the end of April, non-condo resale properties were up almost 35 per cent compared to the first four months of last year, hitting an average $734,682, according to the Ottawa Real Estate Board.
“An eye-opening observation is that today’s new-home buyers are purchasing a townhome for the same price as a single would have cost them one year ago.”
In Ottawa’s new-home market, real estate consultancy PMA Brethour reports towns and singles were up 44 and 34 per cent respectively in the first four months compared to the same period last year. New townhomes commanded an average $667,753, while singles fetched $887,376.
It’s now not unusual to see a new four-bedroom home priced at well over $1 million, and a couple of builders have experimented with the resale strategy of accepting auction-style bids for some homes.
“An eye-opening observation is that today’s new-home buyers are purchasing a townhome for the same price as a single would have cost them one year ago,” says PMA Brethour Ottawa president Cheryl Rice.
“This poses a significant barrier for today’s first-time homebuyers. Rapid appreciation in home prices makes affordable product types such as condo apartments, stacked and back-to-back homes more important than ever. Single detached and even townhomes have simply become out of reach for many buyers.”
Looking ahead to the rest of 2021, Royal LePage is forecasting the aggregate price of a resale home in Ottawa will increase 14 per cent in the fourth quarter of 2021 compared to the same quarter last year.
While avoiding specific numbers, Rice expects new-home prices to continue rising for the remainder of the year, albeit at a more moderate rate as we move into 2022. “Factors including the vaccination rollout, economic recovery, improved seller confidence among others will help fuel supply and reduce price pressures.”
Ownership hopes dashed for many younger Canadians
While buying a home has always entailed some trepidation — it is, as we’re often told, the biggest single investment most of us will ever make — it was also exciting. That seems to be less the case now.
“I find it really scary (that) you have to bid on houses,” says Morgan Patmore, a mother of two young children. With her husband, Bryn Patmore, she is eager to trade their rented quarters for their own home. But, she notes, bidding “is not very transparent. You have no idea how much other people are bidding on a home… I don’t want to be spending $50,000 over.”
The couple — he’s a self-employed tradesperson, she’s on maternity leave from her job as a sales assistant in the building industry — actually bought a new-build home in 2016, when they were in their early 20s. But the debt load and other circumstances forced them to sell it two years later.
“We’re keeping an eye on the market,” says Bryn, but the surge in prices and lack of inventory have kept them on the sidelines. “It’s pretty daunting. You see (prices) and you think, ‘That can’t be right.’”
The couple hasn’t abandoned hope entirely but, according to a recent RBC poll, many have. The poll found 36 per cent of Canadians under age 40 who don’t own a home believe home ownership is now permanently beyond their reach. That number jumps to 39 per cent in Ontario.
And while the survey found the vast majority of Canadians believe home ownership is a good thing, 62 per cent of us think most people will be priced out of the market over the next decade.
Is the desperate bid for home ownership ravaging our financial lives?
Consigning the dream of home ownership to the junk pile is just one outcome of the current market.
Globe and Mail personal financial columnist Rob Carrick — who is no one’s idea of an alarmist — has been questioning the sanity of the housing situation for some time. In a recent column (available only to Globe subscribers), he argues the current market is ravaging our national financial stability as panicked buyers edge closer to their mortgage borrowing limit so they can get a house before prices completely sideline them.
“Devoting a larger share of a household budget to mortgage debt means less money available to pay other expenses,” writes Carrick. “Pay increases might offer some relief, but the prospects for rising income will be uncertain in economic sectors that have struggled through the pandemic.
“Less after-mortgage household income raises the potential for costly spending compromises. Saving for retirement or for a child’s post-secondary education might be sidelined and additional borrowing via home equity lines of credit might be used to pay for extras such as vacations and home upgrades.”
Add in a possible increase in interest rates as we emerge from the pandemic and you can see where stretched buyers might end up.
Concludes Carrick, “Governments and financial regulators have a choice to make: Introduce measures to contain price increases in the real estate market, or let housing keep tearing away at the financial fabric of Canadian life.”
For many, trying to buy a home may be an exercise in self-flagellation from the get-go.
In addition to a dispirited cohort of younger would-be Canadian buyers, the RBC poll found 48 per cent of survey respondents planning to purchase a home in the next two years say their budget is less than $500,000. That doesn’t accord very well with the average resale price of a non-condo property in Ottawa recently exceeding $729,000.
To make things even cheerier, Statistics Canada reports mortgage borrowing in Canada rose last year at the fastest rate in a decade, increasing by $118 billion. The usual argument that rising debt load isn’t as bad as it seems when the value of one’s home is also rising may be less persuasive in light of Carrick’s less-money-for-other-essentials scenario.
Housing affordability in Ottawa and the threat of overvaluation
There’s also the matter of overvaluation. According to a recent Fitch Ratings Report, homes in many Canadian cities are overvalued. Using a formula that involves current income levels and long-term home prices and income, the report concludes that, in Ottawa, homebuyers are paying 24 per cent more than their home’s value.
Canada Mortgage and Housing Corporation’s most recent housing market assessment seems to agree. It moved Ottawa from a moderate to a high degree of vulnerability, citing overvaluation as one factor in the rating change.
There are those who argue that Ottawa, long known as an affordable housing market, is just catching up with other cities on the pricing front. If we’re catching up to Toronto, the future looks grim indeed: The average price of a detached resale home in the Greater Toronto Area reached $1.4 million in April.
Some others say Ottawa homebuyers haven’t been priced out of the market at all.
“With Ottawa being home to many public servants, the median household income being more than $100,000 per year, and below national-average housing costs, residents are capable of adjusting to the price inflation in the real estate market,” Re/Max assured readers in a recent blog.
“The current low interest rate, in conjunction with an above-national-average household income, indicates that many prospective buyers will be able to afford the home of their dreams — even with the steep increases in price over the last year.”
That many can afford the home of their dreams is cold comfort to folks like Bryn and Morgan Patmore.
When it comes to housing affordability in Ottawa, “The city is not an option anymore,” says Morgan. “It’s really heartbreaking to think if this continues what it will be like for our daughters. Hopefully, it can be better for them.”
Is there a solution to the housing dilemma?
Canadian mainstream media have been hyper-attentive to the housing market in recent months. Rarely does a day go by without one of the major dailies or television networks covering a fresh angle. In a recent digital edition of the Globe and Mail, four of the top seven stories were devoted to housing.
That attention includes a cavalcade of suggested solutions, or at least partial solutions.
Some call for greater government support of affordable and other housing to resolve a demand-versus-supply issue. Others want to see an increase in the buildable land supply, a position countered by the argument that we have to preserve our farm land, especially with climate change threatening the food supply, and restrict urban sprawl because it inevitably results in more highways, more commuters and more pollution.
The idea of a capital gains tax on the sale of a primary residence has been floated as a way to slow sales activity and calm an overheated market (in Canada, the tax currently covers only secondary residences like cottages). That suggestion has ignited objections from the likes of Scotiabank chief economist Jean-François Perrault, who said such a change “would represent a considerable financial blow to Canadians.”
Other ideas are being kicked around, from a further tightening of mortgage rules to greater control of foreign investment in Canadian homes (the recent federal budget introduced a tepid one-per-cent tax on foreign-owned residential properties that are vacant or underused).
In some cases, buyers have taken matters into their own hands by waiving conditions and skipping a home inspection, which takes time to arrange in a market where some sellers are allowing only a few days for the submission of bids and may not want inspectors trooping in and out of their home during a pandemic.
“I think it’s a mistake not to (get an inspection),” says Cam Allen of All-Tech Consulting Group Home Inspection. Buying a home that hasn’t been inspected means running the risk of discovering structural and other problems after moving in.
At that point, the buyer’s only real recourse is a lawyer, says Allen, who now gets called in to do post-sale evaluations. He mentions one case he’s involved with where the lawyer has also hired a professional engineer because of a crumbling basement. “The house is moving,” he says.
Like some others, Allen sees demographic shifts as the only real way out of the current dilemma of housing affordability in Ottawa and elsewhere. “There is simply a lack of supply of homes. Until the seniors leave their houses and head to seniors’ residences or condos… it’s a rock and a hard place.”
There have also been calls for an end to blind bidding on resale homes, a provincially mandated rule that forbids real estate agents from disclosing to their clients what others are offering for a home.
Proponents of an end to this rule say not knowing what others are offering in a frenzied market does nothing but drive up the price of a home, especially if an unscrupulous real estate agent tells her client they’ll have to up their offer substantially if they want the home.
No matter how much you offer, Jesse Abrams says to shop around for your mortgage instead of just heading to your bank. Abrams is CEO and co-founder of Homewise, a Toronto-based mortgage brokerage. A recent survey by the company found more than half of Canadian mortgage seekers between the ages of 25 and 44, many of whom were first-time buyers, do not explore their borrowing options.
“It’s a pretty discouraging number,” says Abrams. “With the proliferation of digital technology, we shop around for everything. We use Amazon to look at four different types of shoes we want to buy… I think it comes down to we were never taught to (shop around for mortgages) in high school or college or afterward.”
While it won’t solve all the challenges of housing affordability in Ottawa, dealing with a broker with access to multiple lenders can save buyers thousands of dollars. Abrams says the savings come from access to better interest rates and because some lenders offer advantages like a less expensive penalty if you break the mortgage before the term is completed.
“Shopping around at least gives you choices. And you can still go to the bank.”
“We need to build up renting as a respectable, pragmatic life choice and stop acting like it’s a social disease.”
And maybe we’re just starting to reach the end of mass home ownership. Rob Carrick explored the idea in a recent column (available only to Globe subscribers). With house prices soaring and affordability retreating, he wrote, “more people are going to be forced to rent. We need to build up renting as a respectable, pragmatic life choice and stop acting like it’s a social disease.”
It’s a reasonable suggestion (full disclosure: I have owned my own home for over 40 years and do not look forward to the day I have to leave it). Middle- and upper-middle-class people live in New York City, Paris and other metropolises as lifelong renters and don’t seem to feel hard done by. Maybe it’s time to wake up from the great Canadian dream of universal home ownership and recognize its time has passed.
One final name to throw into the affordability blender: Damian Devonish.
He’s the London, Ont., homeowner who, despite multiple offers for his condo, sold it to the lowest bidder, a single mother of two, as a way of paying it forward. Devonish, who knew what it meant to struggle, had listed the unit for $330,000 but sold it earlier this year to Juliana Aguero for $375,000, which was the lowest bid by about $50,000.
Damian Devonish moved to London from Barbados 8 yrs ago. Juliana Aguero moved here from Colombia 11 yrs ago. After a divorce, Juliana needed a home near her children. Her offer on Damian’s condo was the lowest bid. He took it anyway. Their story at 8:10. #LdnOnt #payitforward pic.twitter.com/5r5zGi8bnF
— Rebecca Zandbergen (@RebeccaZandberg) March 5, 2021
“We don’t know how life will treat us 10, 15, 20 years from now. So, the best thing to do is to live it well today,” he told CBC News.
Devonish’s action may give pause to those of us who will be selling our homes, a pause during which we could ask ourselves whether bidding wars, distorted markets and huge personal profits are really the best way to build a community.
As for Amber Westfall, “We’re going to keep looking and if we feel like there’s a chance we’re going to take our shot. I just don’t see that happening anytime soon.”