First-time buyers escape to small towns in search of affordable housing

Open this photo in gallery:

Amanda Brown and her partner believed their jobs would keep them anchored in Vancouver for the long term. But tight rental accommodations, an expanding family and low interest rates prompted them to re-evaluate.

The first-time buyers are preparing to move into a house they recently purchased in the small town of Summerland, B.C., in the Okanagan Valley.

The two have one son and another baby on the way – and it has been more difficult raising a toddler during the pandemic without relatives close by, says Ms. Brown, who has family in the Okanagan. The ultralow interest rates ushered in by the pandemic economy added some urgency to their decision.

“The big mental trigger was the interest rates,” she explains.

Similar moves are happening in Ontario. Matthew Regan, a broker at Royal LePage Real Estate Services, has worked with many clients leaving Toronto, Mississauga and Oakville for more affordable towns such as Collingwood and St. Catharines.

Despite the real-estate market needing first-time buyers to remain healthy, Mr. Regan says they face many challenges in accessing the market. On June 1, tighter stress test rules came into effect, which place even more pressure on first-time buyers. And while interest rates are low, inventory is extremely slim. The high demand for few listings pushes prices up, he notes.

In the Greater Toronto Area, the MLS Home Price Index composite benchmark stood at $1,050,300 in June. In Metro Vancouver, the benchmark was $1,175,100.

“There is frustration in the market,” Mr. Regan says of the mindset among aspiring homeowners.

“They’re faced with this reality that the dream of owning a home, to many of them, is out of reach. If you’re looking in a major market, it’s a harsh reality.”

Higher prices are also rippling outward from the big cities, he adds.

Mr. Regan recently sold a renovated, two-storey, detached house in Cambridge, Ont., for $1.350-million after listing it for $999,000. The sellers paid $350,000 for the house 10 years ago, he adds.

“Two years ago, I would have been laughed out of the room if I said it would go for that amount,” he says.

“You’ve created a millionaire – and that’s a good thing. The problem is it affects the whole first-time buyer segment.”

But a recent uptick in demand for condos in big cities also suggests that detached property prices have soared to the point where buyers may be more reluctant to purchase them, despite low interest rates.

Beyond prices, Mr. Regan also worries that an eventual hike in interest rates will hamper first-time buyers.

Benjamin Tal, deputy chief economist at CIBC World Markets, and William Johnston, vice-president of analytics at Equifax Canada, note in a recent report that historically low interest rates appear to have spurred many first-time buyers on during the pandemic. As a result, some of that sales activity may have been borrowed from the future.

Mr. Tal and Mr. Johnston add that the Bank of Canada is widely expected to start tightening rates in the second half of 2022 – notably earlier than what was assumed not too long ago.

In the meantime, Mr. Regan notes that many people are moving toward a more laid-back lifestyle – in addition to more affordable homes – when they leave big cities.

For Ms. Brown in Vancouver, she knew her own job in the agricultural sector would migrate easily to the valley in British Columbia’s interior known for its vineyards and orchards. The greater hurdle was her partner’s job in engineering research at a Vancouver hospital. But after working remotely for more than a year, she floated the idea of making the arrangement permanent and her employer agreed to a two-year trial.

In Summerland, the couple was able to buy a three-bedroom detached house with a backyard and a two-bedroom rental suite for a little over $800,000. In Vancouver, they would have paid about $1.1-million for a small townhouse, Ms. Brown estimates.

“We can buy something in the Okanagan that we like, whereas in Vancouver we had to compromise. It’s hard to spend $300,000 more and not get exactly what you want,” she says.

In their new home, they will be surrounded by mountains for skiing and pine forests for hiking. Family is also nearby, and the couple believe it will be easier and less expensive to get their kids into sports and other activities.

Ms. Brown acknowledges that the move does come with its own uncertainties, leaving “the earthquake zone for the wildfire zone.” But the couple is committed to trying out their plan for two years, and then they’ll evaluate again.

“We are totally leaving it open,” she says. “We’ll see if we even like the small-town life. We haven’t tried it as a family.”

Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.