Most Canadian home shoppers are not willing to get pulled into a bidding war to get the perfect place, although first-time buyers are more likely to pay above the asking price, says a poll released Tuesday.
According to a Bank of Montreal Home Buying report, 28 per cent of Canadians surveyed said they would enter a bidding war for a house or condo. That figure was higher among first-time buyers, with 39 per cent saying they would engage in a battle with multiple offers, which most often drives up home prices – to the delight of sellers.
There are indications that the housing market in Canada is finally slowing, although prices are still edging higher. Back when the market was red-hot, holding back bids and entertaining multiple offers was commonplace. Now, there are signs that in certain markets, some of the bargaining power is back in the hands of home buyers.
“Panic is normally part of a bidding war, on the part of the buyer. People get desperate, they think if they don’t get this house, they won’t get the next one, too. That sounds like the housing market of 2005 and 2006,” says Tsur Somerville, director of the Centre for Urban Economics and Real Estate at the University of British Columbia in Vancouver.
While bidding wars still happen, they tend to be focused on exceptional properties, he says. “The types of conditions that lead to bidding wars, the idea that affordability will get worse – that is no longer the case.”
Laura Parsons, a mortgage expert with BMO in Calgary, says first-time buyers – whose average age is 29 – can be inexperienced and less patient when it comes to housing. “In many cases, when they find a home they love they get excited and emotionally attached. So they can get caught up in the moment more than seasoned buyers.”
The biggest danger, she says, is overspending. Her advice to home buyers? “Don’t go past your budget. Do your homework before you go looking and make sure that you should even be bidding on this house. Know what your maximum is and stick with it.”
Lured by low mortgage rates, Canadians have taken on large mortgages. Economists and financial advisers are worried about debt levels among Canadians, and how they will be able to make their monthly mortgage payments once interest rates rise. In the BMO report, Ms. Parsons noted that total housing costs should not consume more than one-third of a household’s income.
Regionally, home hunters in Manitoba and Saskatchewan were most likely to engage in a bidding war, at 35 per cent. That compares with 29 per cent in Ontario, 30 per cent in British Columbia, 31 per cent in Atlantic Canada and 32 per cent in Alberta. Quebec had the lowest average, at 21 per cent.
Mr. Somerville says he’s not surprised that bidding war intentions are highest in the Prairies. “They have seen price appreciation and an increase of population recently, so the mismatch is greatest there.”
Nearly one in four, 23 per cent, of aspiring Canadian buyers polled by BMO said they are willing to make a bully bid – a strategy that involves putting in an offer before the appointed day, normally above the asking price. Toronto buyers were the most willing to make bully bids, at 30 per cent.
From the home sellers perspective, only 15 per cent of those polled said they would be willing to under-price their home to spark a bidding war, with owners in Toronto and Vancouver most likely to do so. Age played a factor, with 25 per cent of home owners under 35 expressing a willingness to do so compared with 8 per cent of those 65 and over.
The problem with buying a home through a bidding war is that it doesn’t give people enough time to evaluate the property – do important things like get a home inspection and think about the purchase, says Mr. Somerville. “It exposes the buyer to more risk than they should take on.”
The panic and stress that home buyers experience when competing in a bidding frenzy for a property is dangerous, he added. “When you are making a major financial investment, desperation is not something you should be going into it with.”
The BMO online survey of 2,000 adult Canadians was conducted by Pollara between February 25 and March 5, 2013.Report Typo/Error