First-Time Home Buyers in the GTA: What You Need to Know About the Current Market & Purchasing Property

For the past few years, first-time home buyers have struggled to navigate the real estate market across Toronto and the GTA.

In 2020, buyers were face to face with The Pandemic Market, which procured a low supply of listings amongst a high demand for property. As a result, home prices increased with demand while the Bank of Canada lowered interest rates to minimize the chance of a recession.

In 2021, home prices remained high with steady interest rates, and supply returned to relatively average levels. In 2022, buyers have witnessed a market shift with high supply and lowering demand as the Bank of Canada continuously raises the prime interest rate with every chance they get.

Toronto’s current market conditions may seem daunting to first-time home buyers. Yes, Bidding wars are at an all-time low this summer, and house prices are, for the GTA, appearing more reasonable than they were at the beginning of 2022. But in fear of a recession, the Bank of Canada is using interest rates to create a buffer for 2023’s economy; a prime rate of 4.70% is nothing short of unattractive to buyers who have long awaited a market price correction.

Real estate agents across the GTA are taking their time with buyers, who now hold more purchasing power amongst decreasing listing prices. However, the hesitation in buying due to rising interest rates has created a stockpile of listings in the MLS, and it’s hard to predict how the market will change if interest rates begin to decline again.

If you are a first-time buyer interested in purchasing property in Toronto or the GTA this year, there are a few things to consider before you put in any offers.

Here are three tips to help first-time home buyers navigate the Greater Toronto Area’s real estate market.

1.     Pick Your Interest Rate Wisely

Rising interest rates are scary, but guess what’s scarier? Choosing an interest rate that doesn’t benefit you in the long run.

In Ontario, home buyers select one of three interest plans for their mortgage: a fixed rate, a variable rate, or an adjustable variable rate.

For fixed rates, home buyers (AKA borrowers) lock in a rate that remains attached to their monthly mortgage payments throughout their agreement with the bank. With recent increases, borrowers can expect a higher initial rate if they select a fixed rate. 

For variable rate mortgages, monthly payments remain the same throughout their agreement with the bank. However, banks retain a varying percentage (aligned with interest rates) of the total paid amount. As a result, variable rates are not locked in, and the portion of your monthly payment allocated to the bank shifts with increases and decreases.

For adjustable variable rates, monthly mortgage payments increase alongside rates to ensure that borrowers pay off a consistent mortgage amount while accounting for higher interest. 

In fear of interest rates continuing to increase, many buyers are turning to fixed rates to lock in a rate that stays consistent throughout the term of their mortgage. On the other hand, variable rates usually reward buyers with lower initial rates and higher flexibility if the prime rate decreases throughout the lifespan of their mortgage.  

Although interest rates are high right now, there are opportunities in the GTA’s current housing market that could create a significant return on investment, thus eventually eliminating the strain of 2022’s rates. Purchasing property with a variable rate mortgage may allow buyers to (1) receive a lower initial rate, (2) enjoy lower rates in the future and (3) profit from home equity that counteracts the cost of high rates.

Sit down with a mortgage agent and your purchasing partner (if you have one) to analyze your overall financial portfolio and build a mortgage plan that ensures you select the best rate for you!

2.     Utilize Government Help for First-Time Homebuyers

The Canadian and Ontario governments offer various programs and tax rebates to soften the blow of purchasing property for first-time buyers. Listed below are four options available from the Federal and Provincial governments.

The Home Buyers Plan allows first-time buyers to withdraw up to $35,000 from their RRSP (retirement savings plan) to build or buy a home. Couples can withdraw up to $70,000, accounting for nearly half of a down payment in the GTA. Under the Home Buyers Plan stipulations, buyers repay themselves with annual payments over the span of 15 years, beginning in the second year after their initial withdrawal.

The First Time Home Buyer Incentive offers buyers a second interest-free loan of 5% or 10% of their home’s purchase price. Borrowers can pay back this interest-free loan after 25 years, or if the house is eventually sold. The First Time Home Buyer Incentive is valid for resale homes, pre-construction homes, or new construction homes. Buyers are eligible based on their location of purchase, their mortgage amount, and their household income. This program is currently extended until March 31, 2025.

The Home Buyers Tax Credit is a $5000 non-refundable tax credit that rewards eligible buyers with a total tax rebate of $750. The Canada Revenue Agency requires that eligible buyers did not own property for up to four years before the purchase, and the property they are filing for must qualify. Qualifying homes include single-family homes, semi-detached or townhouses, mobile homes, or condos that are existing or new construction. In addition, the home must be listed as your principal residence, registered under your name. People who purchased property after January 1, 2022, may be eligible to claim up to $10,000, resulting in a total tax rebate of $1,500.

The Land Transfer Tax Rebate is valued at $4000 for first-time buyers who purchased a home over $368,000. Home buyers who purchased over $368,000 will receive the total rebate but must pay the remainder of their land transfer tax. For couples, if one person is eligible but isn't, they can still receive 50% of the rebate. To qualify, buyers must apply within 18 months of the date of transfer, and they must live in the home within nine months of purchasing.

3.     Keep a steady eye on the market

In Toronto and throughout Ontario, home buyers are required to put 20% down for property purchases over $1,000,000. However, with prices sliding below Toronto’s average home price of $1,200,000, it’s more likely that buyers are now looking to snag a deal below a million.

If you are a first-time buyer looking to purchase property throughout the GTA within a particular budget, it’s best to keep a close eye on the market in areas that you are especially interested in for your desired house type. Listings are constantly going up on throughout the GTA. Amongst the flood of new construction, pre-construction, and resale detached homes, townhouses and condos, there are always opportunities to secure the deal of a lifetime. Watch for equity appreciation opportunities in medium-value areas for low-priced properties that match your criteria, and ensure that your real estate agent provides you with practical comparables.

Remember – the market is constantly shifting, so while prices may be low this summer, there’s no telling how things could change come fall. Therefore, the best time to purchase property is, and always has been, as soon as possible.

Are you interested in securing your first property? Are you and your partner ready to invest in the market? Click the button below to connect with our Real Estate Agent and Mortgage Broker, and learn more about your options in the GTA’s current market, or schedule a call to get started with a Real Estate Action Plan!