Prospects of trading up hampered by limited supply : TD

Tuesday, May 31st, 2016

Ephraim Vecina
The Vancouver Sun

The severe lack of entry-level homes in Canada’s most overheated markets is harming the prospects of not just first-time buyers but also growing families who need to upgrade their dwellings, according to TD Economics.

In an article for the Financial Post, capital markets reporter John Shmuel quoted TD officials as saying that “buyer gridlock”—defined as “a constrained supply of affordable options”—has intensified in Vancouver and Toronto.

The condo sector, in particular, has been most affected by this situation, being the relatively affordable choice for a significant proportion of households who have to deal with the ever-rising costs of living.

“The widening price gap between an entry-level home and a trade-up home becomes a ‘barrier to entry’,” TD Bank Group chief economist Beata Caranci said. “In turn, this reduces churn in the market, elevating prices and scaling back the selection of choices.”

Caranci also pointed at the enormous gains that trade-up properties have experienced over the past few years due to the sheer number of would-be buyers.

“In fact, it could worsen within the core metro areas where existing condo supply and comparative opportunities for development are more readily available,” Caranci warned.

Most importantly, the purchasing arms race and the FOMO (“fear of missing out”) phenomenon stemming from the glut of buyers have dramatic implications on one’s funds later down the line.

“This too eats into future savings for retirement and carries risk for the broader economy that the next economic down cycle will be more extended than previous ones,” the analyst said.

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