[Globe and Mail – June 8, 2022]

Homeowners and buyers should seek advice as they adjust their strategies and look for more ways to save

The changing landscape around interest rates is having a cooling effect on Canada’s scorching real estate market, giving Canadians an opportunity to slow down and explore their options.

Three out of four homeowners polled by CIBC this spring say they intend on staying put in the short-term. While about 22 per cent of homeowners expect to buy their next house within 10 years, the majority have no specific timeline in mind.

“Homeowners are staying where they are at the moment,” says Carissa Lucreziano, CIBC’s vice-president of financial and investment advice. “They don’t have plans to move and this includes upsizing or downsizing.”

Ms. Lucreziano says home sales are cooling due largely to the impact of rising interest rates. She points to a recent report by the Canadian Real Estate Association that found national homes sales dropped by 12.6 per cent on a month-over-month basis in April – the biggest decline since last June. The number of newly listed properties also declined.

Interest rates are top-of-mind for both current homeowners and first-time buyers, she adds. Among homeowners who have a variable rate mortgage, 36 per cent say they are likely to switch to a fixed rate in the next 12 months. For those looking to purchase their first home, six in 10 are concerned that rising rates will negatively impact their ability to do so.

“Rising interest rates, as we know, have an impact on the cost of borrowing which in turn impacts overall purchasing power,” Ms. Lucreziano says. “The outlook is that rates will continue to move in the upward direction over the short term, so those looking for financing for their new place have a tough decision on choosing the right mortgage type, variable or fixed-rate, and what length of term is best.”

First-time homebuyers adjust strategies to get into the market

The affordability of home ownership is another top issue, Ms. Lucreziano says. The average price of a home in Canada was $746,000 in April, according to the CREA.

Half of the poll respondents who are non-homeowners told CIBC they don’t believe they would be able to afford to buy without a co-owner. That’s up five per cent from a year prior.

Among renters, 54 per cent say they cannot afford to buy a home – up seven per cent from the year before, Ms. Lucreziano points out.

“It’s an opportunity to think about exploring the different options out there for homeownership,” she says. Some emerging trends we’ve seen are purchasing a home with a family member or friend, as well as purchasing a property with the potential for rental space to help cover mortgage costs, she says. Over the past few years Canadians are also considering buying outside of major cities in more affordable communities, a trend that will continue. Thirty-eight per cent of renters polled say they would consider such a move to help achieve their homeownership goals.

Solid advice and prudent planning make all the difference

As Canadians adjust their home buying strategies, professional advice is paramount to ensure you understand your options and what is possible, Ms. Lucreziano says.

An advisor can help sort through financing options, set up a savings plan for a down payment, and work through a mortgage pre-approval. They can also explain the many programs available to aid in home ownership, including tax credits and the new federal tax-free First Home Savings Account.

“It is never too early to start and getting the right advice is so important,” Ms. Lucreziano says. “Ensure that you’re working with someone that understands your goals, your timelines, and can really help you see the end stage and that goal in the future.”

For first-time homebuyers, it really is important to plan ahead, she says, including pre-approval for a mortgage, which doesn’t guarantee formal approval but gives buyers an idea of what they can afford.

For current homeowners, it’s important to understand the terms and conditions of their existing mortgage so they can explore financing options for changing or renewing, she adds.

There are several online tools to help Canadians visualize their path to homeownership, CIBC’s mortgage affordability calculator and budget calculators can help you get started today.

Energy efficient homes help owners save in the long term

While the pace of home sales may have slowed slightly, the same cannot be said for home improvements and renovations. A third of Canadians have renovated in the past year and another third plan to do so in the coming year.

The survey found that 30 per cent of homeowners have made energy efficiency improvements in the past year or plan to in the next 12 months. Many of those home improvements are driven by a desire to improve energy efficiency to save money on costs and increase the value of their homes. Energy efficiency was No. 3 on the list of factors potential buyers are considering when house hunting – after location and cost.

“Home energy efficiency is not only good for the environment, but it helps reduce energy costs and that’s what we’re seeing people are very interested in,” she says. “It’s an investment that will help you save on the future costs of homeownership.”

Yet the survey shows more than half of Canadians are not aware of government programs and rebates to support energy efficiency, she points out. A professional advisor can also help homeowners sort through the various federal, provincial and, in some cases, municipal rebates that make renovations more affordable.

“There is a big, big opportunity for Canadians to obtain advice,” she says. “There are just so many options out there to think about.”