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BMO Financial Group

April 19, 2012 06:00 ET

Property Wars: Majority of Canadians Unwilling to Bid Above Asking Price for a Home-BMO

- Three-quarters of Canadians unwilling to enter bidding war

- Those in the Prairies, Ontario and Alberta are more willing to enter a bidding war than those in Quebec and Atlantic Canada

- According to BMO Economics, average home prices across Canada are rising modestly, with the exception of Toronto and Vancouver

TORONTO, ONTARIO--(Marketwire - April 19, 2012) - According to the BMO Home Buying Report released today, the majority of Canadians (75 per cent) are unwilling to enter a bidding war when making an offer on a home. Of those prepared to fight, half would pay up to 110 per cent of the asking price, while a quarter would be willing to bid up to 120 per cent.

Regionally, the survey, conducted by Leger Marketing, revealed:

Willingness to Enter Bidding War TOTAL BC AB MB/SK ON QC ATL
Yes 22% 23% 25% 32% 28% 10% 13%
No 75% 74% 74% 64% 68% 87% 81%
Percentage of Asking Price TOTAL BC AB MB/SK ON QC ATL
100-110% 52% 53% 53% 48% 51% 62% 44%
110-120% 27% 30% 17% 22% 30% 25% 33%

Demographically, men are more willing than women to up the ante to 120 per cent of the asking price (34 per cent and 20 per cent, respectively).

As many Canadians are looking to buy a house or condo this Spring, Laura Parsons, Mortgage Expert, BMO Bank of Montreal, noted that those on the hunt for their dream home need to stay realistic about their financial priorities.

"One of the most important decisions a person will make is the purchase of a home, so it's a good idea to do a thorough financial assessment well in advance to determine what you can realistically afford," said Ms. Parsons. "It's important that Canadians keep their emotions in check when looking for the home of their dreams to ensure they do not over-extend themselves."

Ms. Parsons added that total housing costs should not consume more than one-third of household income. Further, Canadians should consider choosing a shorter amortization to save thousands in interest costs and begin building equity sooner.

According to BMO Economics, average home prices across Canada are rising modestly, save for the two divergent markets of Toronto and Vancouver. The average home sale price in Toronto is $504,117, while the average in Vancouver is $761,742. Nationally, the average home sale price is $369,677.

"Toronto prices have risen 11 per cent over the past year, while Vancouver's have fallen 3 per cent," said Doug Porter, Deputy Chief Economist, BMO Capital Markets. "But excluding those two centres - which account for a little more than a quarter of national activity - prices and sales in the rest of the country are rising modestly. For most cities, the market is well balanced and generally moderating after strong gains in recent years."

BMO offers the following advice for Canadians searching for a house or condo this Spring:

Stress-test your budget: Stress test your financial budget using a mortgage payment based on a higher interest rate. If rates rise even 1 per cent, you will need an additional $126 per month on a $200,000 mortgage.

Live within your means: Stick to the "one-third" rule to ensure you're living within your means. Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of overall household income.

Think carefully about fixed vs. variable mortgages: While variable rates mortgages have been a winning strategy over the long term, fixed rate mortgages (currently near historic lows) come with the peace of mind of being insulated against rate increases.

Consider choosing a shorter amortization: The shorter the life of the mortgage, the less you pay in interest. Choosing a maximum 25-year amortization helps households build equity in their home faster and save thousands in interest costs over the life of the mortgage. For example, on a $400,000 mortgage at a 5 per cent interest rate, choosing a 25-year amortization can save upwards of $70,000 in interest.

The survey was completed on-line from March 19 to March 22, 2012 using Leger Marketing's online panel, LegerWeb, with a sample of 1000 Canadian home or condo owners. A probability sample of the same size would yield a margin of error of 3.1 per cent, 19 times out of 20.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $538 billion as at January 31, 2012, and more than 47,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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