Most Canadian homebuyers unwilling to enter bidding wars

Beacon Reporter AB
Beacon News


Majority of Canadian homebuyers would rather walk away than enter bidding war

The majority of Canadian homebuyers (72 per cent) are unwilling to enter a bidding war when making an offer, says a new report from BMO Bank of Montreal.

However, 39 per cent of first-time Canadian homebuyers are willing to pay beyond a home’s asking price, compared to 28 per cent of total buyers.

“It’s essential Canadians keep their emotions in check when shopping for a home and avoid over-extending themselves as a result of a bidding war or by purchasing a home they cannot realistically afford,” says Laura Parsons, BMO mortgage expert.

“One of the most effective ways to do this is to work with an expert well in advance to build a budget and determine what is financially appropriate.”

Bidding wars were most likely to happen in Toronto, Vancouver and Calgary, where sellers said they would intentionally underprice their home to spur competition.

As average home prices across the country continue to rise, most Canadian homebuyers are hesitant on paying more than the asking price.

Across the country, prices have seen single-digit increases over the past year.

The average home sale price in Canada is currently $378,532.

“Regina, Winnipeg and the Hamilton area have led the way in home price increases over the past year, while Victoria saw a 7.5 per cent decline,” said Robert Kavcic, BMO senior economist.
BMO gives a few tips for families looking for a new home:

• Stress-test your budget: Stress test your financial budget using a mortgage payment based on a higher interest rate. If rates rise even 1 per cent, you will need an additional $126 per month on a $200,000 mortgage.
• Live within your means: Stick to the “one-third” rule to ensure you’re living within your means. Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of overall household income.
• Think carefully about fixed versus variable rates: While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently near historic lows) come with the peace of mind of being insulated against rate increases.
• Consider choosing a shorter amortization: The shorter the life of the mortgage, the less you pay in interest. Choosing a maximum 25-year amortization helps households build equity in their home faster and save thousands in interest costs over the life of the mortgage. For example, on a $400,000 mortgage at a 5 per cent interest rate, choosing a 25-year amortization can save upwards of $70,000 in interest.