While the Canadian housing market may have softened after its red-hot, pandemic-inspired run – resulting in lower home prices from coast to coast – the country’s sky-high interest rates have rendered it officially the toughest time to purchase a home in the country's history. Inflation and a deflatingly high cost of living certainly don’t help.

While rates remain high (although no longer rising), economists forecast that the Bank of Canada could begin to drop its overnight lending rate in the second half of the year. So, countless would-be buyers are sitting in the sidelines, waiting for a drop to happen. New data from BMO Economics underscores this.

The BMO Real Financial Progress Index reveals the majority (72%) of aspiring homeowners are waiting until interest rates drop before purchasing a home – a 4% increase from 2023 – amid rising concerns about the cost of living (58%), inflation (56%), and their overall financial situation (38%), over the past three months. Of those surveyed, 13% of aspiring homeowners plan on purchasing a home in 2024, and 26% plan on doing so in 2025 or later.

While Canada’s central bank left interest rates unchanged in April – as widely expected – they hinted at the possibility of a rate cut come summer. “Demographic forces have allowed some pent-up demand to build, and market psychology is such that many are expecting rate cuts in the second half of the year," said Robert Kavcic, Senior Economist, BMO Capital Markets. "This should pull some demand off the sideline and firm up housing activity, but rates have a long way to fall still before affordability is restored to recent norms."

There is some positive news for Canadians in the midst of our current climate. The BMO Real Financial Progress Index found 85% of Canadians believe they are making real financial progress, and over two thirds (67%) feel confident in their financial situation. However, the fear of unknown expenses (84%) and concerns about their overall financial situation (81%), and housing costs (74%) are among the leading sources of financial anxiety.

bank of canada interest rateInterest Rate Cuts Likely “Over The Course Of This Year”: Bank of Canada Shutterstock

The New “Canadian Dream”

According to the survey, top concerns affecting Canadians’ homebuying decisions include inevitably redefining the Canadian dream, as their parents knew it. While 62% believe owning a home is one of their biggest aspirations in life, 56% of aspiring homeowners feel homeownership is unattainable. Another consideration includes pent-up demand; among the 39% of aspiring homeowners planning on purchasing a home in the near future, only 13% plan to in 2024 and more than a quarter (26%) plan on doing so in 2025 or later. The cost of home ownership is another major consideration, with 41% of respondents saying that rising home insurance costs may impact their ability to maintain or buy a home.

With that said, despite the current climate, the next generation still has high hopes for home ownership – they just may be approaching it a little different than other generations. Despite their concerns about the economy and cost of living, Millennials (70%) and Gen Z (68%) are the most likely to believe owning a home is a big aspiration in life. They are, however, realistic about timelines. While over half of Gen Z (51%) and Millennial (56%) aspiring homeowners plan on purchasing a home in the future, 33% of Gen Z and 37% of Millennials believe this goal will not be achieved until 2025 or later – more than any other generation.

Furthermore, they’re not doing it entirely on their own. In today’s economy, young homeowners need all of the help they can get; that’s where parents so often come into play. Gen Z (52%) and Millennials (31%) are the most likely to expect to receive and/or plan to ask for financial help from their parents and/or grandparents, with 16% of Gen Z and 12% of Millennials looking for support towards a down payment for a home.

Parents of millennials (54%) are the most likely to provide financial support to their adult children, where a third (33%) intend to help their children with their home purchase including a cash contribution towards a down payment for a home (23%) and contributing towards their child's First Home Savings Account (FHSA) (10%). "Despite the economic and market challenges, there are still many young Canadians preparing to embark on their home-buying journey and enter the real estate market for the first time," said Hassan Pirnia, Head, Personal Lending and Home Financing, BMO.

interest rates houses, townhouses houses, townhouses

Respondents also had concerns about the environment, with 39% of Canadians say climate-related factors such as wildfires, floods, heatwaves, and storms will affect where they choose to live in the next five years. Gen Z (54%) and Millennials (49%) are the most likely to prioritize climate-related factors in their homebuying decisions. Finally, the current economy also has Canadians re-examining their refinancing decisions. Nearly three quarters (74%) of homeowners who plan to refinance their home say they will wait until mortgage rates drop before doing so.

As for those sky-high interest rates, they’re not only taking a toll on the homebuying plans Canadians, but impacting the construction of new homes as well, making it too expensive to build.