Fewer First Time Home Buyers Could Signal Trouble

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A recent report from Canada Mortgage and Housing Corporation shows that there are fewer first time home buyers entering the nation’s real estate market. The recently released Renovation and Home Purchase Report, which highlights the key trends, analyses and statistics from ten major Canadian cities, predicts that the housing market could be headed towards trouble thanks to a decreasing number of first time home buyers. 

Statistics of Note

According to the CMHC, 6 percent of households in the cities surveyed (St. John’s, Halifax, Quebec, Montreal, Toronto, Ottawa, Winnipeg, Calgary, Edmonton and Vancouver), bought a house in 2011. Data from the survey suggests that this number will drop by 1 percent in 2012. The ratio of first time home buyers in 2011 was roughly 35 percent. This metric dropped for the second straight year. In 2010, the ratio was 38 percent; in 2009, 43 percent.

The report also provided an age breakdown of first time home buyers. In the ten cities surveyed, it was the 35-44 age bracket that showed the most home buying activity (28 percent). The 25-34 age bracket was a close second with 25 percent, while baby boomers (55+) accounted for 24 percent of housing purchases.

Why Aren’t First Time Homebuyers Buying?

There are a number of factors in the current market that are hindering first time home buyers. First, higher prices in urban centres is making it extremely difficult for young couples to secure a down payment and lock in a low mortgage rate. More importantly, tighter lending rules are making it increasingly more difficult for first time buyers to get ahead and secure a mortgage pre-approval.

Proposed changes to lending rules will only make things harder for young home hunters, leading economists to fear an even further drop in first time home purchases in 2012. Ottawa has proposed to increase the minimum required down payment from 5 percent to 8 or even 10, as well as reduce the maximum allowable amortization from 30 years to 25. While these changes will help curb debt and slow down overheated markets, they will also make it extremely difficult for first time home buyers to secure affordable financing. Saving 10 percent for a down payment in a market like Vancouver is no small task – you’d need roughly $35,000 for an older one bedroom condo. Oh, and don’t forget an additional $6,000 in property transfer taxes and another $1500 in closing costs.

The message? If you have 5 percent now, talk to your mortgage broker. The longer you wait, the less likely you’ll be able to take that first step come the fall. Ottawa is expected to release more details on new regulations later this month, at which point banks will need to become compliant with new rules. If you’re considering entering the real estate market, now’s your chance. Rates are low, lending regulations are relatively agreeable, and mortgage brokers are available to help you every step of the way.

What Are People Buying?

The Renovation and Home Purchase Report found that more than half (52 percent) of people surveyed bought a larger home than their prior residence. As such, 59 percent admitted to buying a more expensive home than their prior residence. A large percentage, 72 percent, purchased a pre-owned home. Exactly half of those surveyed purchased a single-detached home, while 39 percent purchased a multi-unit space (this included 27 percent who purchased a condo).

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