Home for sale with red and white real estate sign during the fall season. Fall season with leaves on ground. Front porch and windows in background. Residential neighborhood. Moving house, relocation concept. Realtor putting up signs.

Despite increasing housing costs and historic inflation, the desire to purchase a home in a big city has grown, a new BMO housing survey suggests.

Among more than 1,000 prospective Canadian homebuyers surveyed, interest in purchasing a home in a major city centre increased by 5% since last year, the survey found.

“Major cities continue to be the most popular destinations, while a preference for moving further from the city has seen a decline this year,” BMO Financial Group stated in a press release.

The challenge is paying for those urban homes. Three-quarters of homebuyers expected the cost of housing to continue to increase in the next year, and four-fifths (84%) expected inflation to continue to rise. Three-quarters also expected further interest rate increases.

“These financial hurdles are having a major impact on the purchase plans for these consumers, in terms of what they will buy and when they will buy,” said Hassan Pirnia, head of personal lending and home financing products with BMO Financial Group, in the release. “Most understand that they will need to spend more; the impact on timelines is split, with some buying sooner before prices go up more, and some holding off to see if prices come down.”

Based on data from the Canadian Real Estate Association, home sales declined by 5.4% on a month-over-month basis in March. The national average home price was $796,068, up 11.2% from March 2021.

Over the past year, the expected amount to pay for a house increased by $100,000 across the country, up by 26%, the BMO survey found. On average, Canadian homebuyers expected to pay $588,000 for a house.

Among the 68% of respondents who said they were willing to change how much they spend on their home purchases, nearly three-quarters (73%) were willing to spend more, citing price increases (55%), more income (28%) and more savings due to the pandemic (27%).

More than half of prospective homebuyers (55%) stated they’ll use most, if not all, of their increased savings for a down payment. Further, 52% said the increased down payments allowed them to spend more on their homes and get bigger mortgages, an increase of 20% compared to 2021.

More than one-third of respondents expected to have a down payment of 10% or less, with more than two-fifths depending on help from family.

Because of concern about housing affordability, the latest federal budget proposed the tax-free first home savings account.

The online BMO survey was conducted by Pollara Strategic Insights between Feb. 24 and March 7 among 1,003 adult Canadians planning on buying a home in the next 12 months. The polling industry’s professional body, the Canadian Research Insights Council, says online surveys can’t be assigned a margin of error because they don’t randomly sample the population.