The price gap between the starter home and the dream home is widening at a rate that risks keeping first-time homebuyers stuck in less expensive properties for much longer than anticipated, according to a study from the Canadian Imperial Bank of Commerce (CIBC).
The September 8 report pointed to Vancouver, where the housing market is particularly strong, as one of the most concerning cities in the country.
While, on average, home prices in Canada have gone up 5%, the prices of Vancouver homes sold for more than $1.1 million have gone up by nearly 18%. The gap between the so-called starter home and the dream home has widened by $200,000 in the past four years, according to the report.
"Gravity-defying home valuations, exacerbated by tighter mortgage insurance regulations, have worked to price out a notable portion of the first-time homebuyers' market,” CIBC deputy chief economist Benjamin Tal said in his report.
“At the same time, an asymmetrical trajectory of price appreciation is starting to paralyze the ‘move up’ market."
Young homeownerships rates among Canadians aged 25-35 have dropped from 55% in 2012 to 50% in 2014, according to the study.
But Tal noted sales of units at the low-to-mid price range began to drop in 2010, driven mostly by a decline in single-detached homes. If not for an increase in condo sales, the drop in units in the mid-to-low price range would have been far more drastic.
“This activity is driven largely by investors and first-time homebuyers who see condo ownership as a cheaper alternative to unaffordable low-rise units. That’s a good illustration of the important stabilizing force played by the condo market in recent years,” Tal wrote.
“However, given that the average price of single-detached units in the first-time homebuyer category is north of $1 million — upgrade options in the city are becoming even less affordable.”
