Toronto First-Time Buyers and the Stuck Property Ladder

Where do first-time buyers stand right now? I am talking about families and couples who are renting and waiting for the moment they can buy their first home. Look at the numbers and it feels like they are stuck in place. Compared to a few years ago, far fewer people are buying that first home.

I am Moe Asgarian, a senior real estate broker in Toronto, ranked #47 worldwide at RE/MAX. One of the things I am known for is finding good homes for clients buying for the very first time. So if you are a first-time buyer, this one is for you.

The property ladder, and why it is stuck

Toronto has a ladder that people have climbed for years. You buy a condo, pay it down over a few years, trade up to a townhouse, and after a while move into a semi-detached or detached home. This is real, and over the past two decades many people climbed it. It is not something every Canadian market offers. You can do it in Toronto and Vancouver, but in Edmonton or Calgary it may not be so easy. The method is sound. The problem is the bottom rung has stopped moving.

Why the bottom rung stopped moving

Over the last five years, Toronto condo prices have barely grown, and at times they have slipped a little. Prices today are close to where they were in 2020. Meanwhile interest rates went up, banks apply higher stress tests, rents rose in many places, and investors are selling their condos, which floods the market with inventory. Let me show you with an example. A home comes to market at $2 million. Who buys it? You might picture a family earning $500,000 a year that can get pre-approved. Maybe, but usually not. The real buyer is someone who bought a home for $1 million five years ago that is now worth about $1.5 million. They sell it and buy the $2 million home, and their income grew too. So who buys that $1.5 million home? Probably someone who bought a $750,000 townhouse five years ago. And who buys that townhouse? The first-time condo seller. The upper rungs kept climbing while the first rung, condo price growth, froze.

Why condo prices are not falling

In Canada, 40% of homeowners have a mortgage, 27% own outright with no mortgage, 26% rent, and 8% live somewhere they do not pay rent, probably with family. The hot part of the market is expensive freehold homes in good Toronto neighborhoods, because incomes rose and that segment got pricier. So people ask, with this much condo inventory and a buyer's market, why do prices not fall? Even months of inventory reached 6 months. The answer is that the months of inventory has not been stable. It swings, 6 months, then 4, then back up. That is why prices neither jump nor drop. If inventory climbs to 8 or 9 months in the coming months and rates do not come down, real pressure could hit the Toronto condo market, because many condo sellers are investors whose decisions ride on interest rates. Honestly, the only way I see condo prices in Toronto rising is if inventory drops to half of what it is now and the Bank of Canada cuts rates.

Two fixes that would help

So what needs to change for a first-time buyer to make a good purchase? Government and bank programs and tax-free savings accounts help, but on their own they are not enough to get into this market. I would offer two ideas. First, ease the stress test for first-time buyers. Right now everyone has to qualify 2 points above their actual rate, so a 5% mortgage means qualifying at 7%. For first-time buyers you could make that 1 point and loosen the bar. Second, extend the amortization. We all know a longer amortization means paying the bank more interest over time. The government already lets you extend amortization on new or brand new homes under certain conditions. One fix would be to let first-time buyers get that longer term not just on new builds but on any home on the market. Paying less in the early years genuinely helps people become owners.

What first-time buyers can do now

My advice is to stay active and watch the market closely. Even in these conditions you can find a good option where the seller has to sell, and that is where you make a good purchase. Use the bank and government tools available to you and open tax-free savings accounts so you can put money toward a home without the tax hit. Over the years I have bought and sold homes and condos for hundreds of clients who were first-time buyers or first-time sellers, and I can help you make a good decision too.

If you want that help, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.