‘Jaw-dropping’ housing market challenging next generation of buyers, Western experts say

March 25, 2022

For Sale Sign from Wikimedia Commons

For Sale Sign - Wikimedia Commons

It’s no secret that house prices in Canada are soaring, and while the increases may mean big gains for those already in the market, there is a generation of buyers getting shut out or taking on greater risk.

“Even in mid-sized cities like London and Hamilton, the annual growth rate of house prices is eye-popping and jaw-dropping,” said professor Diana Mok of DAN Department of Management & Organizational Studies at Western University.

According to the Canadian Real Estate Association (CREA) the average house price in Canada was $748,450 in January.

With the high prices, Mok believes there is a real issue surrounding affordability brewing in our country.

“Real income has hardly increased at all when taking inflation into account. For many young people, without any support from families it is next to impossible for them to get into home ownership.”

As a result, the younger generation of buyers are being forced into riskier loans from what are considered B-lenders or even C-lenders, because they don’t qualify with the traditional banks, Mok said.

“The expensive house prices pushed a lot of high-risk borrowers into what we call a shadow banking system. How risky are these loans? We don’t know because it’s all happening beneath our noses.”

For those who are already in the market, the value of their homes has gone up – even tripled in some cases – but mortgage payments have not yet risen as fast.

“In 1996, a home at average value ($199,857) would result in a monthly mortgage payment of $1,525 at an eight per cent interest rate,” said Michael Haan, professor of sociology at Western University.

“Meanwhile in 2021, a home at average value ($639,745) would result in a monthly mortgage payment of $2,709 at a two per cent interest rate.”

Read the full story by Justin Zadorsky at Western News