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40.8% of Canadians say buying a property is less appealing due to inflation, while 23.7% are postponing buying or selling a property

Rapidly rising inflation in Canada has led to dramatic increases in interest rates. The prime lending rate has surged from 2.45% in March, 2022, to 7.20% today, the highest levels we’ve seen in more than 20 years. Low-interest rate mortgages are a thing of the past, and that has dampened enthusiasm among potential homebuyers in Canada. 

 

In the LARi Insight inflation survey of over 1,200 Canadians, 40.8% indicated that buying a property is now less appealing. Since May, 2023, Canada’s housing market has steadily dropped in terms of both volume and average sale value reported by CREA. In May, the average sold price of homes was $729,044, with a volume of 54,241 transactions. By November, those values had dropped to an average sold price of $646,134, with a volume of 35,013 transactions.

“Renewing my mortgage was expensive. I had a fixed rate of a little over 2% and I had to renew at almost 6%. I took a fixed rate over a shorter period in hopes that the rate will be lower when I renew in 2 years.” – Daniel, Belleville, Ont.

The drop in home sale values isn’t enough to offset the increased borrowing costs that Canadians face due to the interest rate increases designed to combat inflation. Five-year fixed mortgages are currently hovering between 5-6%. If we use the average home price in Canada, less a downpayment of roughly $40,000, the difference between the 2.5% mortgage rates of years past and current rates is daunting. Using the LARi Insight mortgage calculator, a 5.5% mortgage would result in added interest of $48,831 over the five-year term of the mortgage, an additional $9,766 per year. It’s no wonder so many Canadians say they are putting their homebuying ambitions on hold.

18.8% of Canadians are Exploring More Affordable Housing Options Due to Inflation

CPI data from Statistics Canada illustrates the severity of the housing inflation we’ve seen since the pandemic. The cost of owned accommodation, which includes mortgage interest costs, property taxes, homeowners’ insurance premiums, maintenance and repairs, has risen over 22% since May 2020 based on CPI data. Whether you own your home or rent, the cost of keeping a roof over our heads has gone up dramatically since the early days of the pandemic.

 

For most mortgage owners, the pain is yet to come. According to the CMHC, about 2.2 million mortgages will be up for renewal in 2024 and 2025, 45% of all mortgages in Canada. Most of the homeowners will be ending mortgages that had record-low interest rates. 

As mortgage interest takes a bigger bite out of disposable income, some Canadians will face tough choices on downsizing or selling their homes, possibly into a buyer’s market if housing prices continue to fall. Inflation has hit our economic landscape hard, and we’ve previously explored the impacts to Canadians in terms of long-term savings goals and retirement, insurance coverage, jobs and salary, and investment strategy.

“I am afraid of how much my mortgage will rise in July, 2024. If it is too much and I cannot afford it, what will I do? Since rents have also increased, I cannot sell the house and rent.” – Linda, Edmonton, AB 

12.9% of Canadians are Considering Renting Instead of Buying

Unfortunately, there’s little shelter from rising housing inflation, as rental rates have surged across Canada.  The cost of rented accommodation increased 18.5% from May 2020 to December 2023. According to Rentals.ca, the Asking rents for all residential property types in Canada averaged $2,174 in November, holding close to the record high in October ($2,178). We created our Canada Rent Inflation Calculator to help you easily explore the impacts of inflation on rent prices over the last 30 years with just a few clicks.

 

Surging rental rates have unfortunately brought out the worst in some landlords, leading to a spike in ‘renovictions’ in which landlords evict tenants under the guise of renovating the unit, only to rent it to new tenants at a higher rate. A 2022 report from Ontario’s Advocacy Centre for Tenants (ACTO) highlighted a 294% increase in landlord applications to evict tenants for renovations or conversions since 2015-16.

“[Housing inflation] has resulted in being locked into a rental property and the constant fear of renovictions. Should we leave for whatever reason, there would be no housing available which we could afford.” – Shira, Brampton, Ont. 

Just 3.8% of Canadians Indicated that Buying a Property is Now More Appealing

Undaunted by rising interest rates, or perhaps motivated by the rising cost of renting, 3.8% of our survey respondents told us they see improved opportunities in the real estate market. 

“We had planned to buy a house but could not afford it. We opted for a condo, though we have two young kids and I wish we could have been able to afford a house. Renting was insanely expensive!” – Melannie, Toronto, Ont. 

Manage Housing Inflation Costs Through a Proactive Plan

While surging rents and higher mortgage rates can put a real dent in your monthly budget, some careful planning and good financial habits can help you stretch your dollars further. To start, we recommend planning in advance for your mortgage renewal, using sample data in our Canadian mortgage calculator. Next, set a family budget, using our Canadian budget calculator to map your income and expenses. Worried about unforeseen financial setbacks? An emergency fund can help you be ready for anything, and our emergency fund calculator can help you set achievable savings goals. And finally, if growing debt has you down, we hope our tips for debt management will help. 

The Financial Impacts of Canadian Inflation

Explore our complete coverage, with original market research and analysis from LARi Insight.

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