2023 Canadian Home Buyer Report

With housing prices and interest rates stuck in the stratosphere, buying a home in Canada is about as challenging as it’s ever been. But the majority of Canadians still see themselves as
future homeowners.

By Clay Jarvis
February 2, 2023

Amid a precipitous decline in sales activity, Canada’s housing market remains as unwelcoming as ever. But despite facing a litany of barriers — high interest rates and unaffordable real estate chief among them — buying a home is a priority for two-thirds (67%) of Canadians.

Over 2 in 5 (43%), or almost 16 million, Canadians plan to purchase a home in the next five years, according to a new NerdWallet study conducted online by The Harris Poll among 1,012 Canadian adults from January 5-8, 2023. Reaching this goal will be a monumental task for many, particularly the 24% of those who say they plan to buy a home in five years and use a down payment, but have yet to start saving for it.

Even taking into account the challenges they face, Canadians don’t feel their home buying odds have deteriorated heading into 2023. Almost half (49%) say their ability to buy a home this year is neither better nor worse than it was in 2022, while a modest 13% say it has improved. Optimistic buyers may have bulked up their savings, paid down their debts or increased their income — smart, often critical moves to make when doing battle with a housing market as unforgiving as Canada’s.

“Canadians should feel optimistic about purchasing a home, especially if they’re proactive in getting their finances in order before getting started,” says Shannon Terrell, personal finance expert at NerdWallet Canada. “That’s not to say optimism alone will clinch your dream home, but believing you can succeed will keep you going — and making prudent financial decisions — if the market does say ‘no.’”

Key findings

Homeownership is a goal for millions of Canadians. Forty-three percent of Canadians say they plan to purchase a home in the next five years. Just 5% plan to buy a home in the next 12 months.
Investment is a leading homebuyer priority. Thirty-four percent of Canadians say buying a home is a priority for them because it’s a good investment.
Down payment savings trail homebuying expectations. Around three-quarters of Canadians (76%) who plan to buy a home in the next five years plan to use a down payment, but 24% of them say they haven’t yet started saving.
Non-homeowners and homeowners share many of the same challenges. Homeowners can sometimes have an advantage over non-homeowners when buying homes, but a majority of both groups — 70% of non-homeowners and 57% of homeowners — say something, including things like market forces or financial challenges, is preventing them from pursuing homeownership at this time

Sixteen million more home sales by 2028? Not likely.

Forty-three percent of Canadians say they plan to purchase a home in the next five years. If all are successful, that would equate to 15.9 million home sales between 2023 and 2028, or about 3.2 million sales per year. In contrast, Canada’s annual record for residential real estate sales, set in 2021, is around 667,000.

Homeownership may not be a realistic goal for many hopeful buyers, but their time horizons do indicate a practical understanding of the housing market’s current state.

Only 5% of Canadians say they plan to purchase a home in the next 12 months, a period in which mortgage interest rates are expected to remain restrictively high. Seventeen percent say they intend to buy in two to three years, by which time rates and home prices may have moderated. Twenty-one percent say they plan on buying in four to five years, which gives them added time to save money and build their credit score.

Younger Canadians appear the most eager to buy. Thirty-seven percent of Canadians aged 18-34 and 36% of those aged 35-44 plan to purchase a home within the next three years. Only 15% of Canadians aged 45-54 and 9% of those aged 55 and over plan to buy within the next three years.

Hint for home buyers:

Setting a time horizon for a home purchase is an excellent idea. It’s the first step in crafting your home buying plan. But those parameters will have consequences.

If you intend to buy in 2023, or possibly in early 2024, you could be dealing with high interest rates and a mortgage stress test that limits your buying power. If you choose to wait a little longer, you could have to deal with higher home prices. Either way, these possibilities should inform your down payment savings strategies.

‘Good investment’ tops list of reasons Canadians prioritize homebuying

Two-thirds of Canadians (67%) say buying a home is a priority for them, whether now or in the future. This sentiment is even higher among younger adults, with three-quarters of those aged 18-34 (78%) and 35-44 (75%) say buying a home is a priority — which is hardly surprising. But it’s notable that 68% of those aged 45-54 and 57% of those 55 and older say buying a home is a priority, despite the fact that, if successful, they may be paying for those future homes well into retirement.

The top reason given for prioritizing the purchase of a home, regardless of age group, is that it’s a good investment (34%). Other reasons for prioritizing the purchase of a home involve building wealth or planning for the future.

Twenty percent of Canadians say buying a home is a priority to them because a property can be passed on to their children or future children. Nineteen percent say it’s because they want their monthly housing payments to go toward equity rather than rent. Sixteen percent say it’s because buying a home is how they are saving for retirement.

But Canadians are also prioritizing the purchase of a home for more traditional reasons. Twenty-one percent of Canadians say it’s a priority because they want more space, while 14% say it’s because buying a home establishes roots.

Hint for home buyers:

A house can be an excellent tool for building long-term wealth, but it’s risky putting all of your financial eggs in this particular basket — especially if you do so right before a market slump. You don’t necessarily want to hit retirement with your home being the only asset you have to sell, either.

Real estate can be part of a diversified investment portfolio, which may help your finances endure periods when the housing market is generating minimal gains. But if you’re real-estate-or-bust, consider diversifying your investments: balance cash flow with appreciation when choosing properties, and consider investing in some reliable REITs or real estate stocks.

Insufficient down payment savings will shut millions out of the market

Roughly three quarters (76%) of Canadians who plan to purchase a home in the next five years and use a down payment say they have already started saving — a truly positive finding, as financial readiness could help separate the successful home buyers from the hopeful ones in 2023.

What’s alarming is the number of Canadians who plan to buy a home in the next five years using a down payment but say they have not yet started saving — almost one quarter (24%).

Canada’s lending rules make down payments critically important. On homes priced below $500,000, buyers can get approved for a mortgage with a 5% down payment. A $400,000 home for example, would require a minimum down payment of $20,000. Based on these survey results, that currently puts homeownership out of reach for the 52% of Canadians who plan to buy in the next five years using a down payment but do not currently have $20,000 saved for it.

Homes valued between $500,000 and $999,999 require even higher minimum down payments — 5% on the amount below $500,000 and 10% on the amount above. A home selling for Canada’s average sale price in December 2022, $626,318, would require a minimum down payment of $37,631. These properties would be in play for less than 2 in 5 Canadians who intend to use a down payment when purchasing a home in the next five years, as only 38% currently have $30,000 or more saved for it.

Hint for home buyers:

It’s easier said than done, especially during an exhausting period of high inflation, but if you plan to buy in the next five years, save, save, save, save, save. Whether you’re looking to take out a smaller mortgage, expand your home buying budget or convince a lender to offer you a lower interest rate, a larger down payment is key.

If you’ve already slashed your unnecessary spending and are socking money away in a high interest savings account, it may be worth considering other tools, like a tax-free savings account or the new First Home Savings Account. Both allow you to invest your deposits, and the earnings are tax-free. Managed carefully, these accounts can help you increase your down payment savings more quickly. The First Home Savings Account allows you to deduct your deposits, too, giving you added tax advantages.

The market is a rough place — even for homeowners

One indicator that the Canadian housing market may be reaching peak brutality is that both non-homeowners and current homeowners are struggling to acquire property. Seventy percent of non-homeowners and 57% of homeowners say something is preventing them from pursuing home ownership at this time — and they’re facing many of the same obstacles.

Twenty-seven percent of non-homeowners and 24% of homeowners say mortgage interest rates are too high for them to pursue homeownership at this time. Thirteen percent of non-homeowners and 12% of homeowners say they are being prevented by a lack of available homes for sale in the areas they want to live. The current economic climate is holding back 25% of non-homeowners and 21% of homeowners.

An equal proportion of homeowners and non-homeowners, 8%, say the home buying process is too stressful for them to pursue home ownership at this time.

Current homeowners do, however, appear to have more confidence around getting their next home purchase financed. Compared to 37% of non-homeowners, only 12% of homeowners say not having enough money saved for a down payment is what’s preventing them from pursuing homeownership. And while 20% of non-homeowners say they don’t think they would qualify for a mortgage at this time, only 9% of homeowners harbour the same doubt.

These sentiments around mortgage qualification potential illustrate the catch-22 so many first-time buyers find themselves confronted with: In order to succeed in the current Canadian housing market, it helps to already own a home.

Hint for home buyers:

One reality Canadian first-time home buyers must accept is that the deck is stacked against them. Prices are high. Supply is low. Mortgages are expensive. Current property owners can leverage home equity you don’t have access to.

But don’t consider these obstacles impossible. Think of them as inspiration, a reason to re-evaluate your earnings and savings, or to do the little things that can improve your credit rating. If possible, start working on these aspects of your personal finances now. There’s no guarantee the market will break your way in the next few years, or that you’ll ever be able to outbid an experienced homeowner who has capital to spare, but you can keep the dream of homeownership alive by doing the hard work sooner rather than later.

Methodology

This survey was conducted online by The Harris Poll on behalf of NerdWallet from January 5-8, 2023 among 1,012 Canadian adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 4.0 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Lauren Nash ([email protected]). We used 2021 Census population figures from Statistics Canada to estimate the total number of Canadians who plan to buy a home in the next five years, as well as the total number of sales that would occur between 2023 and 2028, if they were successful.

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