The Altus Group‘s “FIRM Residential Mortgage Survey” shows first-time home buyers accounted for about half of all homes sold in Canada in the last two years. That’s more than a quarter million sales each year.
“First-time buyers make the home-sales world go around,” states the report. They play “an important role as buyers in the newly built market and also in purchasing existing homes…”
First-timers are especially vital to lower-end property sales. That’s essential to a healthy market because it allows existing homeowners to sell efficiently and then upgrade.
Despite low interest rates, however, Altus Group says access to the market has become more restricted for entry-level buyers. It attributes that to prevailing house-price levels and the “cumulative impacts of more stringent mortgage insurance criteria.”
Canadian Real Estate Association economist, Gregory Klump, suggests the new mortgage rules have had an immediate impact. “Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers,” said Klump.
Looking into the future, renters who haven’t bought yet are also less optimistic. Altus Group says first-time buyer intentions among this group are down from a year ago, and below the 2002 to 2009 average. According to the report, this too is due to tighter mortgage insurance rules.
Of all the government’s recent changes, the reduction in maximum amortization carries the biggest impact. 41% of home buyers in the last 16 months have chosen extended amortizations (> 25 years), according to CAAMP. If you included just first-time buyers, that percentage would be significantly higher—especially in pricey markets like Vancouver or Toronto.
As a rough ballpark, dropping from 35 to 30-year amortizations cuts the average buyer’s maximum purchase price by 6-7%. Put another way, the 5-year reduction in amortization takes the typical first timer over 6% more income to buy the same priced house. (That’s not a commentary for or against longer ams., just a point of observation.)
Shorter amortizations are bound to push some buyers into cheaper properties (until prices adjust) or defer people’s home buying to some degree. TD recently found that 63% of younger buyers polled cite the loss of 35-year amortizations as having “a significant impact” on their decision to buy a condo over another home type.
Here are a few other notable findings from Altus Group’s report:
- Those aged 25 to 34 accounted for six of every 10 first-time home buyers.
- About one in four first-timers were between 35- and 49-years-old.
- Single-person households made up roughly one quarter of recent home purchases.
- The average price paid by recent first-time buyers was $273,000, or about four times the average annual household income of $69,000. That’s up from the price-income ratio of 2.7 for first-time buyers, as per the 2001-02 report.
Steve Huebl and Rob McLister, CMT