27 Jul Is ‘buy smaller’ really the best solution?
Is ‘buy smaller’ really the best solution?
In a response to the recent interest hike, Bank of Canada’s head says that Canadians should ‘buy smaller’ homes.
The Bank of Canada has recently raised their interest rates from 1.25 per cent to 1.5 per cent. With the new interest rates, RBC has also raised their prime lending rate by 0.25 per cent. To add on, mortgage rates have also been rising this year.
All of these factors combined to make home ownership an unrealistic goal. In a recent conference, the Governor of the Bank of Canada, Stephen Poloz, made a statement when announcing the rate hike that was seen as controversial to many, saying “As we said at the time, many of these issues go down to the individual level: people who don’t qualify for a mortgage on the house they wish today have multiple avenues of adjustment, one of them is to just go ahead and buy a smaller and less expensive home”.
On another note, house prices have recently fallen; one of the reasons being the new foreign buyer rules in certain provinces. In May of 2018, the average home price in Canada, according to the Canadian Real Estate Association, was $496,084; 6.4 per cent lower than last year. In Toronto and Vancouver, the average home price is $772,000, and $1.1 million.
For many, the rising rates come without a solution. While Poloz says that Canadians should buy smaller homes, the idea may not work. Buying smaller is a strategy that most often, does not work in urban cities. Because house prices are already unaffordable, buying smaller, unfortunately, does not make a difference.
Another reason why the idea is controversial is due to the implications it comes with. If Canadians were to buy smaller, the future for Canada would look extremely different. Purchasing a smaller home could lead to a limited number of children per household, and ultimately, smaller families.
While rates go up, Canadians struggle to find proper solutions to their debt, and buying smaller just may not be effective enough.