With Home Values Surging, Is it Still Affordable to Buy Right Now? - December 3, 2020

With Home Values Surging, Is it Still Affordable to Buy Right Now?

Housing inventory is at an all-time low. The Toronto Real Estate Board reported in October there were 3053 new listings in York Region compared to 1577 a year earlier. In addition, 1919 homes were sold in York Region in October 2020 compared to 1176 in 2019. While it appears that there are more homes available, it does not take into account the level of demand. That is where the housing inventory measures come into play.

The housing inventory is a measure of the balance between sales and the supply of listings. Ultimately it represents how long it would take to liquidate current inventory at the current rate of sales activity.  According to the Canadian Real Estate Association, there were just 2.5 months of inventory on a national basis at the end of October 2020 - the lowest reading on record for this measure. At the local market level in York Region, we are under one month of inventory as per the most recent statistics.

Whenever there’s a shortage in the supply of an item that’s in high demand, the price of that item increases. That’s exactly what’s happening in the real estate market right now. As a result, home prices are surging.
 


This is great news if you’re planning to sell your house. On the other hand, as either a first-time or repeat buyer, this may instead seem like troubling news. Purchasers should realise that the price of a house is not as important as the monthly cost. Here’s how it breaks down.

There are several factors that influence the cost of a home. Two of the major ones are:
1) The price of the home
2) The mortgage rate at which a buyer can borrow the funds necessary to purchase the home
 

Why are homes still affordable today?

The number one factor impacting today’s home-buying affordability is record-low mortgage rates. There’s no doubt that prices are on the rise. However, mortgage rates have fallen dramatically. Most major A lender banks are offered 5 year fixed term mortgages for less than 2.0% to 1.7%.

If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how affordability plays into the overall cost of your home. With that in mind, buying while mortgage rates are as low as they are now may save you quite a bit of money over the life of your home loan.
 

Bottom Line

At this point, home purchase affordability is still in a historically good place. However, we need to watch price increases going forward. In the United States, Mark Fleming, Chief Economist at First American bank, said it well:

“Faster nominal house price appreciation can erode, or even eliminate, the boost in affordability from lower mortgage rates, especially if housing income growth doesn’t keep up.”

If you are thinking of buying or selling and want more insights on what the current trends could mean for you and your family, give me a call at 416-522-1112.

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