The Waterloo region’s housing market has been a roller-coaster ride over the past few years; however, signs are starting to show that the bubble may be maxing out.
Despite the growing number of tech jobs in the Waterloo region, housing sales have started slowing down over the past year, dropping 11.1 per cent in 2018. This has not, however, prevented the average price of homes to rise by 3.4 per cent in the same year.
Bidding wars have been driving up housing values and pushing home buyers’ limits on their monthly mortgages. In some cases, buyers are putting themselves on the hook for mortgages worth more than $100,000 over the value of their home. With rising mortgage rates and the lack of affordable housing in the area, this may be a dangerous mix for an already volatile housing market.
Most financial planners suggest that the maximum consumers should spend on housing, including, mortgage, utilities and property taxes, should not exceed 32 per cent of their monthly income, but what does this mean? According to the most recent Waterloo census bulletin, the average family income in Waterloo region is less than $78,000, which would mean that the average household could afford roughly $2,080 towards a mortgage. The average house in Waterloo, however, now costs $495,000, which, based on the average current interest rates, would require a monthly mortgage repayment of roughly $2,800 per month.
Based on the 32-per-cent rule, in order to balance your budget on the average Waterloo home, you would need a household income of $104,400 per year, or $26,000 above the average household income. This means that most homeowners are paying a lot more than they can afford on their home. With the new government rules to qualify for a mortgage, fewer young people can even afford to get into the market in the first place.
“We are also seeing realtors listing under market value to encourage bidding wars. This results in a misrepresentation of fair market value and encourages borrowers to bid higher,” said Julie Brenneman, a mortgage specialist at The Mortgage Centre. “Unfortunately it has become more difficult for consumers to qualify with new mortgage rules and the market has not adjusted to reflect this.”
There are government programs to help first-time buyers get into the market, such as the $5,000 first time home buyers tax credit and various energy credits. Waterloo Region also has a first-time buyer incentive called the affordable home ownership program. Those who qualify can receive a five per cent loan, (up to $19,300) towards the down payment on a house valued under $386,000. The catch, however, is that you must live in your home for a minimum of 20 years to take advantage of the loan forgiveness. Otherwise, when you sell your house, you must pay back the principal loan, plus an additional five per cent on the increase in value of your home.
“Every time I make an offer on a property, I bid over the market value. It doesn’t seem to make a difference, because people are still out-bidding me by over $100,000,” said first time buyer Andy Bakes. “I’ve had to live with my parents while I look for something, but, at this point, I’m almost ready to buy anything to get my freedom back.”
Although the Waterloo region housing market has been difficult to predict, it doesn’t appear that prices will fall anytime in the near future. The booming tech industry and lack of available housing should keep things stable, at least for now. Buying a home is a huge investment and a major step for many young Waterloo residents; however, with the cost of housing in the region skyrocketing, living affordably in the region is looking less favourable to new homebuyers every day.