Rising home prices and an apparent spike in bidding wars are worrying the Bank of Canada, while causing headaches for potential Canadian homebuyers.
Wayde Johnson and Jenn Lum, who entered Canada’s red-hot housing market four weeks ago, have quickly learned three things: houses are expensive, competition is fierce and properties sell fast.
The young couple plan to sell their two-bedroom condominium and buy a detached home in one of Mississauga's older, more established neighbourhoods. And they're adamant they won’t enter a bidding war to win a house.
“We’re going to lose a lot of houses,” Lum said.
“The budget is just the budget and we’re going to stick to very close to that,” Johnson said. “If someone bids higher than that, they’re going to get the house.”
That strategy may prove difficult — especially after a nationwide survey conducted by the Bank of Montreal suggested one in four Canadians would willingly enter a bidding war.
However, Canada’s top banker Mark Carney is urging Canadians to avoid spending more than they can afford on a house. In an interview with CBC Radio’s The House, he suggested the housing market in the most expensive parts of the country, such as Vancouver and Toronto, could be headed for trouble, though he stopped short of calling them a housing bubble.
Carney’s biggest concern is that Canadians may not be able to carry their current debt level when the key interest rate climbs back to "a more normal level" — something he said will eventually happen. For now, the current low interest rates continue to drive an intensely competitive housing market.
The Real Estate Council of Ontario (RECO), the regulatory corporation that administers and enforces the Real Estate and Business Brokers Act, doesn’t track the exact number of bidding wars but it’s well aware of the issue.
Bruce Matthews, RECO’s deputy registrar, told CBC Radio his organization is dealing with a surge of complaints stemming from bidding wars — especially after they began an ad campaign warning people about the perils that come along with trying to outbid others for a house.
"People allow emotion to overwhelm reason," Matthews said. "We certainly suggest that people remain as detached as possible."
Buyers waiving conditions to land homes: RECO
Buyers are not only paying a premium to win houses, Matthews said, they’re also waiving conditions like a home inspection and financing, which were once the norm, and can cause serious problems in the future.
That’s what Mark Egan, Johnson and Lum’s real estate agent, is worried about as he pulls up to a house with a large backyard that he’s excited to show the couple. There are already two other families looking at the home. A stack of business cards on the dining room table is another sign of the interest in the home.
“When something is unique in a house … it’s going to bring multiple offers in,” Egan said.
In Egan’s experience, multiple offers drive the price of a $450,000 house — his clients’ budget — up by over $10,000. And, deals without conditions, what Egan calls “cleaner” offers, often wind up winning. “It’s not a scenario that I’m comfortable putting Jenn and Wayde in,” Egan said.
'You have to be good with everything'
Egan’s plan to win the couple a house is twofold: first, they’ll keep looking at houses until they know exactly what they’re looking for; second, they’ll see houses as soon as they’re listed with the hopes of striking a fast, fair deal.
Despite some early setbacks — the most frustrating, Lum said, is seeing homes advertised as “newly renovated” that fall flat of expectations — the couple remains hopeful they’ll find a good house.
“Everything about it has to be comfortable for you,” said Lum. “The amount of money you’re spending, where you’re living … you have to be good with everything.”
“But on the other hand good is good enough. You can’t just expect everything is going to be perfect,” Johnson said.