Rising interest rates and the overall higher cost of living are causing a large number of Canadians to postpone their homebuying plans.
Nearly one in five Canadians (19%) says they plan to “delay or de-prioritize” the purchase of a home, according to the results of a recent survey commissioned by Royal LePage survey and conducted by Leger.
That percentage rises to nearly a third (29%) for those in between the ages of 18 and 34.
“A large portion of homebuyers have moved to the sidelines since the cost of borrowing began its rapid increase in March,” Karen Yolevski, COO of Royal LePage, said in a release. “Everyday expenses have gone up, and compared to periods of pandemic lockdown, Canadians are saving less and spending more money on services today, including travel and entertainment.”
Of those who said they are delaying their purchase, a majority (60%) said they have put their plans on hold indefinitely. The other 40% said they still intend to buy, but at a later date.
The findings are an improvement compared to the results of a similar Scotiabank survey conducted back in April.
At that time, when rate hikes were just getting underway, 43% of respondents said they were putting their homebuying plans on hold. Roughly half of those between the ages of 18 and 34 said they were reconsidering their purchase plans.
Higher interest rates hurting affordability
It’s little surprise that many prospective homebuyers are choosing to stay on the sidelines for now as interest rates continue to rise and home prices trend downward.
Since March, the Bank of Canada has hiked its benchmark lending rate by 300 percentage points, bringing it to 3.25%.
That has led to a sharp rise in the carrying cost of variable-rate mortgages and lines of credit. At the same time, fixed mortgage rates have been climbing since the start of the year, led by a rise in bond yields.
Whereas rapidly rising home prices were responsible for a deterioration in affordability throughout much of the pandemic, elevated interest rates are now largely to blame.
According to National Bank of Canada, housing affordability reached its worst level in 41 years as of the second quarter, shortly after home prices peaked and as interest rates started to rise.