Canada’s urban exodus is slowing down as homebuyers return to major cities and head back to the office.

A recent survey by BMO Financial Group found that despite the increasing cost of housing and soaring inflation, interest in buying a home in major city centers increased by five per cent since last year. Toronto was the most sought after destination, followed by Vancouver, then Montreal.

“During the last two years we saw a shift among homebuyers moving away from city centres. This was driven by their need for larger living space while working from home,” Hassan Pirnia, head of personal lending and home financing products of BMO Financial Group said. “As people slowly return to the office, we’ll see a shift back to city centers.”

Affordability will play a major role in the type of properties purchased. Detached home prices are up significantly, so condos will be a more affordable option, Pirnia said.

“Market conditions are quickly changing,” Robert Kavcic, senior economist at BMO Capital Markets, said in the April 25 release. The Bank of Canada’s rate hikes will “bite into affordability” and “temper market psychology” he said.

The BMO Home Buyers Survey was conducted by Pollara Strategic Insights between Feb. 24 and March 7, with an online sample of 1,003 adult Canadians planning on buying a home in the next 12 months. The margin of error is ± 3.1 per cent 19 times out of 20.

The survey found that an increase in savings during the pandemic and soaring housing costs triggered a change in purchase plans for homebuyers, specifically when they will buy and how much they will spend.

Of those surveyed, 73 per cent said they are willing to spend more on their home purchase, primarily because the prices have gone up (55 per cent); they have more income (28 per cent) and they have more savings because of the pandemic (27 per cent).

More than half (55 per cent) of respondents said they will use most or all of their increased savings for their down payment. Fifty-two per cent reported using their increased down payment to spend more on a house and get a bigger mortgage, a significant increase of 20 per cent since last year.

In addition, 75 per cent of respondents said they expect the cost of housing to continue to increase until next year. Eighty-four per cent expect inflation to continue to rise and another 75 per cent expect further interest rate increases, Pirnia said.

“These financial hurdles are having a major impact on the purchase plans of customers, in terms of what they will buy and when they will buy,” Pirnia said.

The survey found the amount homebuyers expected to pay for a house has increased by $100,000, up 26 per cent since last year. On average, homebuyers across the country are expecting to pay $588,000 for a home.

Ontario leads the country as the most expensive province to buy a home in 2022 with homebuyers expecting to pay an average price of $790,000, that’s up from $582,000 in 2021. BC followed with average home prices expected to hit $768,000 up from $645,000 in 2021. Quebec was third at $454,000 up from $374,000 the previous year. The Atlantic provinces were the least expensive at $355,000 up from $223,000.

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