01/31/2018 14:01 EST | Updated 01/31/2018 14:33 EST

First-Time Buyers Giving Up On Toronto’s Housing Market, Poll Shows

Canada’s largest housing market entered a deep freeze in January, early data shows.

Toronto Star via Getty Images
A for sale sign for a house in Toronto's St. Clair and Arlington neighbourhood. New polling data from the city's real estate board suggests many first-time home buyers are giving up on the city.

The reality of high house prices, rising interest rates and tougher new mortgage rules is sinking in for Canada's largest housing market, where first-time buyers are showing all the signs of fatigue.

According to an Ipsos survey carried out for the Toronto Real Estate Board (TREB), far fewer first-time buyers will be lining up to get on Toronto's property ladder this year than was the case last year.

The news comes as preliminary data for January shows Toronto's housing market slowing considerably at the start of this year, in the wake of interest rate hikes and a new mortgage qualification "stress test" at the major banks.

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The poll of 1,000 likely homebuyers found 41 per cent of people in the city of Toronto this year are first-time buyers, down sharply from two-thirds in the same poll a year earlier. For the entire Greater Toronto Area, first-time buyers fell to 41 per cent of all buyers, from above half.

"It's a new reality where fewer transactions involve first-time home buyers, likely because they aren't able to qualify or afford the home they would have even a couple of years ago," Matthew Boukall, director of residential products at Altus Data Solutions, said at a TREB event this week, as quoted in the Globe and Mail.

"First-time buyers have flexibility — many can continue to rent or to live with family," TREB said in a report this week.

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With the announcement of Ontario's new housing rules last year, "first-time buyers likely put their decision on hold to see how market conditions changed."

The polling data should come as little surprise, given the deterioration in affordability in the city in recent years. Royal Bank of Canada reported last fall that Toronto's housing affordability index hit its worst level on record.

Couple that with a tougher home-buying environment — rising interest rates and tough new mortgage rules — and the reasons for a pullback among new buyers become clear.

"Intending home buyers were well aware of the potential impacts of mortgage lending guideline changes and higher borrowing costs," TREB said in its report. "Many respondents indicated that mortgage-related issues would play a role in their decision-making process."

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For many right now, that decision seems to be to sit on the sidelines. Preliminary sales data for January shows the city's housing market in a "deep freeze" this month, Bloomberg reported.

"Lots of people are sitting on the sidelines waiting or hoping that prices would fall," John Pasalis, president of Toronto-based Realosophy Realty Inc., told the news service. "I don't expect to see a rapid increase in prices or a big turnaround this year."

The board's data showed that the trend of first-time buyers pulling away was already underway in 2017, the year Toronto's house prices peaked, before new housing rules introduced by the province put downward pressure on the market.

First-time buyers accounted for 47 per cent of home purchases in 2017, down from 51 per cent a year earlier, TREB data showed.

Mark Blinch / Reuters
A sign indicating a house has been sold on the real estate market is seen in Toronto, April 9, 2009.

But part of that appeared to be a shift among first-time home buyers away from the increasingly pricey central city to the suburbs. The share of first-time buyers in the GTA outside Toronto actually rose in 2017, to 48 per cent from 43 per cent.

Despite the seeming departure of many first-time buyers, TREB doesn't see much of a decline in Toronto's market in the coming year. It expects the average price for all housing types to sit somewhere between $800,000 and $850,000, or roughly the same scale as last year's average price of $822,681.

It expects to see 85,000 to 95,000 home sales in 2018, similar to the 92,394 sales clocked in 2017.

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