According to a recent study conducted by TNS Canada, the nation’s housing market is expecting to see increased activity within the next two years. The online study, which was commissioned by TMG The Mortgage Group Canada, discovered that just under one third of Canadian renters are planning to buy real estate within the next two years. That amounts to a potential increase in demand of nearly 12%. Not surprisingly, many recipients credit mortgage interest rates for driving their purchase decision.
Further data from the study shows that nearly 38% of current renters are planning to buy in the next two years. Over half of those surveyed also stated that they would likely buy sooner if interest rates were expected to rise 2% or more in the coming year. Financially, this makes perfect sense. Locking in a mortgage now, before rates rise, could save a potential homeowner nearly $30,000 on a 5-year fixed mortgage (assuming a 10% down payment and 25 year amortization period on a home priced at the national average).
Rates Aren’t the Only Motivating Factor
While mortgage rates are a main driver for many virgin home hunters, it’s not the only factor. The study also showed that Canadian renters are paying close attention to mortgage features. In a press release announcing the study’s findings, Lawrence Smith, Professor Emeritus in Economics at the University of Toronto noted that “the same percentage of renters indicated the ability to repay with as much flexibility as possible was as important as obtaining the lowest possible mortgage rate.” As such, potential Canadian homeowners appear to be focused on paying off their mortgage, rather than just obtaining one. Compare this to the subprime mortgage meltdown in the U.S., and it seems as though the next wave of Canadian homeowners have learned a valuable lending lesson.
What Else Should You Be Considering?
If you’re thinking about trading in your rental agreement for a purchase agreement, it’s important that you take some time to consider other determining factors outside current mortgage rates. As such, property virgins should also review the size of their downpayment in concert with their emergency planning fund. Investing every last penny into your downpayment might help you avoid mortgage insurance, but is the stress of being house poor really worth it?
House hunters should also take into consideration the possibility that housing prices could rise (or drop) in the next two years. For example, a 10% price drop could potentially offset the benefit of buying before a 2% rate hike. On the other hand, a 10% price increase, on top of a 2% rate hike, could price you out of your dream home. Pay close attention to the housing market in your area – the last thing you want to do is miss a golden purchasing opportunity.
The Importance of Working with a Mortgage Broker
When asked where they intended to look for mortgage information, 68% of respondents to the TMG The Mortgage Group survey indicated that they would contact a Canadian mortgage broker. An impressive 91% of renters who participated in the survey also stated that they would likely use the services of a mortgage broker when planning to purchase real estate.
This is great news for brokers, and an impressive shift in the homebuyer mindset. “Buyers recognize mortgage brokers provide a fast, efficient way to access a wide variety of mortgage options and solutions, in most cases at no additional cost,” stated Mark Kerzner, President of TMG The Mortgage Group Canada. “Saving time and money is important, especially to first time purchasers.”