Five things we learned about first-time homebuyers from the Globe and Mail
March, April and May are the housing market’s biggest months, and real estate watchers are busy prognosticating whether Toronto’s sluggish-of-late market will see a rebound this spring. One of the more in-depth accounts, courtesy of the Globe and Mail, hones in on how first-time buyers are faring. Below, five key facts about this segment of the market—including what might convince them to take the plunge.
1. First-time buyers have a huge impact on the rest of the market
Even people who have owned a house for years are affected by the activity of first-time buyers via the so-called “trickle-up effect”: if young people are reluctant to buy, existing homeowners hoping to upsize or cash out are forced to stay put.
2. They haven’t been buying
A couple of measures suggest first timers are currently nervous to enter the market. Houses below the median price accounted for 52 per cent of total sales volume in 2011, but dropped to only 45 per cent last year, suggesting that fewer sales are taking place on the lower end of the market. Another indicator: the rental market is booming, with vacancy at near ten-year lows and rents rising. Amazingly, more condos were rented through MLS than were sold using the system last year.
3. New mortgage rules are one reason they’re staying away…
Ottawa’s eight-month-old mortgage regulations cut the maximum period for a government-insured mortgage from 30 years to 25, effectively raising monthly payments and making it tougher for young people to enter the market. In fact, the mortgage industry says it’s so tough that the government should resume backing 30-year mortgages for qualified buyers—though it’s unlikely Finance Minister Jim Flaherty will see it that way.
4. …but they’re not the only reason
Toronto’s high housing prices are also deterring first-time buyers. Some young people are holding off because they believe prices will soon drop, while others are choosing to buy in the suburbs, where homes are cheaper. Then there’s the group who simply can’t afford anything that’s for sale.
5. Ultra-low mortgages could tempt them back
BMO attracted a lot of attention (and some criticism) for cutting its benchmark five-year mortgage to 2.99 per cent earlier this month. Since then, industry watchers point out that mortgage applications and Canadian Google searches for the word “mortgage” have jumped—despite calls for caution from finance columnists.