What do a 6-person match of Monopoly and Canada’s most in-demand markets have in common? Certainly not a game without consequences, according to TD’s chief economist.
“There’s no get-out-of-jail-free card on this board,” Beata Caranci warned in her latest report, as quoted by The Globe and Mail
’s Michael Babad.
Caranci’s study sounded the alarm on the long-running affordability and debt issues plaguing the Canadian real estate sector, which can have permanently damaging effects in the event of a major recession.
The economist cited the common practice of purchasing an entry-level property as a first home, and then trading up for another house later down the line, as no longer viable in an environment characterized by ever-growing prices and mortgage premiums.
“In doing so, you’ll likely receive only a modestly better home or neighbourhood. Taking into account other costs associated with selling, financially it makes more sense to stay put and/or renovate,” Caranci said.
“The widening price gap between an entry-level home and a trade-up home becomes a ‘barrier to entry’ for existing homeowners. This reduces churn in the market, elevating prices and scaling back the selection of choices. This buyer gridlock effect is made worse as homeowners respond by renovating their entry-level homes,” she added.
This development has made condos the overwhelmingly popular choice among first-time buyers, with little to no prospects of trading up—not unlike a situation where the best positions in the Monopoly board have already been purchased.
“As a result, demand for a detached home is being fulfilled by an outward push into adjacent metros, inflating prices in markets that are further afield to their first-choice destination for live, work and play,” Caranci explained.