Are higher interest rates forcing Canadians to postpone their home purchase?

The latest poll shows that almost one third of younger Canadians had to postpone or deprioritize their home purchase since the start of 2022.

The survey, conducted by Leger for Royal LePage, asked 1,565 Canadians whether “the higher cost of living, including growing interest rates and inflation,” made them “postpone or deprioritize the home purchase since the beginning of 2022.”

According to the results, 29% of respondents between 18-34 answered ‘yes,’ while 31% said ‘no’. Another 40% didn’t have any home buying plans for this year.

“In my opinion, this category may be waiting for prices and interest rates to stabilize, and then those buyers may potentially return to the market,” – noted Karen Yolevski, Chief Operating Officer of Royal LePage Real Estate Services. “They’ll take a pause, keep increasing their down payment, saving for closing costs. What we’re seeing now is caused mostly by the cost of living and borrowing costs hikes.”

As you know, the Bank of Canada has raised its key lending rate from 0.25% to 3.25% so far this year, sharply increasing the cost of borrowing.

As a result, we’ve seen a national decline in real estate prices during the previous six months, with RBC earlier warning about a historic housing correction.

Nevertheless, the higher interest rates have made it even more difficult to qualify for a mortgage, which was already quite a challenge for young and first-time buyers.

At the same time, many economists believe Canada will face a recession next year

According to David Doyle, the head of economics at Macquarie Group, the cooling real estate market and growing inflation point to an “almost inevitable” recession.

“Usually, you see weaker housing starts when you head into a recession,” – he noted. “And we’re definitely seeing that right now.”

However, not only young people had to change their home buying plans in 2022.

The survey shows 19% of all respondents answered ‘yes’ to the survey question, while 54% said they had no plans to buy a home since the start of the year.

Yolevski says the GTA rental market is getting more expensive, forcing many people to make difficult decisions when it comes to buy or rent dilemma.

In Yolevski’s opinion, the best advice for the first home-buyers in the 18-34 age category is saving for a down payment and working with a professional.