Ratio of First-time Buyers Shrinks

First-time-HomeCMHC’s just-released Renovation and Home Purchase Report has new data on renos and first-time buyers.

Here’s a rundown of the highlights:

  • % of households buying a home in 2011: 6%*
    (5% of households expect to buy in 2012, according to CMHC’s survey.)
  • Ratio of first-time buyers in 2011: 35%
    (This fell for the second straight year. It was 38% in 2010 and 43% in 2009. Higher prices and tighter lending rules are making home buying more challenging for some first-timers. That’s a trend to watch since young purchasers are the foundation of the housing market.)

  • Homebuyers by age in 2011:
    • 25-34:  25%
    • 35-44:  28%
    • 45-54:  19%
    • 55+:  24%
  • % of homebuyers in 2011 who funded their down payment with savings:  84%
    (Savings was the top down payment source, as usual. This includes RRSPs & investments.)
  • % of repeat buyers who bought a more expensive home than their prior residence:  59%
  • % of repeat buyers who bought a larger home than their prior residence: 52%
  • % of buyers purchasing a pre-owned home:  72%
  • Types of homes purchased in 2011:
    • Single-detached:  50%
    • Multi-unit:  39%  (Including 27% who bought a condo)
  • % of households who renovated in 2011 and financed those renovations with:
    • Savings: 81%
    • A mortgage: 15%
    • A line of credit or credit card: 11%

*  The 10 major centres were surveyed when collecting this data: St. John’s, Halifax, Québec, Montréal, Toronto, Ottawa, Winnipeg, Calgary, Edmonton and Vancouver.


Rob McLister, CMT

  1. This is an indicator that a house price correction is coming. New home buyers currently can’t afford them.
    At some point you are going to run out of those buyers who have a large amount of cash because they are selling an over inflated house at the same time they are buying.
    As the generation of homeowners who rode the housing bubble collectively downgrade to retirement homes, houses will have to be repriced at levels that allow new buyers to get in the market.

  2. I see a couple of positive signs in the renovation side of the report.
    1) In the 10 major centres surveyed, average cost of renovations rose from $12972 (2010) to $13709 (2011). This is good news on the economic front as industries supplying these goods and services will be able to grow.
    2) These renovations were increasingly paid for from savings – 81% in 2011 compared to 74% in 2010. This is a good sign that consumers are not increasing personal debt to finance these projects.

  3. Well Benoit, we’ve been hearing this same mantra for well over 4 years now. Your opinion is largely unsubstantiated, which requires that it be given very little weight.
    Overinflated house prices? Based on what? Please explain and site sources.
    Retired persons flocking to sell their homes? Really? This has to be one of the most wildy speculative and worst “bear” theories currently being floated.

  4. Retired persons flocking to sell their homes? Really?
    Really! I just sold a house for elderly relatives. It happens, Appraiser. Have you ever done an appraisal and you notice an elevated toilet seat, grab bars around the tub, and the house hasn’t been updated in a while, almost as if the current occupant has been living there a long time? Chances are, it’s a retired person (or the estate of one) selling. Demographics don’t lie, and the numbers moving into their peak selling years are greater than the numbers moving into first home buying years. But if you can wait it out, Statscan says there’s a mini-boom (a baby bump?) in the under four set.

  5. Rent to price
    income to price
    gains relative to inflation
    All show housing is overvalued.
    http://www.economist.com/blogs/freeexchange/2011/03/global_house_prices
    Price relative to U.S., especially given you have lower average disposable income and lower GDP per capita (especially the second), also show it is overvalued.
    And the grand daddy of them all, every time housing has exceeded 7% of GDP three years later there has been a correction
    http://www.bloomberg.com/news/2012-02-17/canada-housing-poised-for-severe-drop.html
    The economy simply cannot support the mal-investment for any longer than that.
    But, none of this must be data to you or you’d already know it. So never mind.

  6. For someone so eager to quote ratios, it is telling that you ignore the most important one.
    Those indicators you mention don’t move the market. Buyers don’t look at historical values of rent-to-income, price-to-income, etc. What they care about is, can I afford a house now. The ratio that moves prices is carry cost to disposable income. At the moment it is about average. Forget all that other gibberish and watch numbers that mean something.

  7. ..to Emmi.. Is is possible that
    the rents will increase at a
    higher rate
    to catch up to values as
    oppossed to values adjusting?

  8. Sadly, none of the ratios you’ve quoted take in to account the cost of money, which is a key variable.
    The price to income, price to rent and price to GDP ratios all same the same thing and have for several years now, yet they are all WRONG. Therefore they are useless
    The affordability indices ( ie.
    Bank of Canada, RBC, and TREB) are the only ones that matter and they are the only ones that have been correct.

  9. “Sadly, none of the ratios you’ve quoted take in to account the cost of money, …The price to income, price to rent and price to GDP ratios all same the same thing and have for several years now, yet they are all WRONG. Therefore they are useless. The affordability indices (i.e. Bank of Canada, RBC, and TREB) are the only ones that matter and they are the only ones that have been correct.”
    It is true that the cost of money is the key factor. So what does that tell us?
    The cost of money is at an all-time historical low. Since, as you point out, people are buying on the basis of what they can afford on a cash-flow basis, not on the basis of what is economic, most new buyers are fully leveraged. At a 3% rate, a 1% rate hike translates into a 10% higher monthly payment. Since affordability drives the market, that would translate into a 10% decrease in home values, all things being equal.
    I own a home, and am happy to see it increase in value. But I am also realistic: the fact that prices correlate with affordability and not with the underlying economics is typical of a bubble, although one driven in this case by continuously dropping rates. When those rates rise, as they will, the value of my home will drop as a direct mathematical function of that rate increase.

  10. Vancouver prices are distorted by sales over $1 million. The people buying those properties can easily afford them. Many pay cash. Others willingly pay a premium to live in this incredible city.

  11. ‘When those rates rise, as they will, the value of my home will drop as a direct mathematical function of that rate increase.”
    When / if rates rise it will change the affordability index accordingly, all things being equal. Thus you have proved my point.
    It is the affordability index that matters.

  12. Since when are facts about demographics anecdotal? And there is very strong evidence from the US that people become net sellers of real estate at about age 65.

  13. It is the affordability index that matters.
    That still doesn’t explain cities like Vancouver. Affordability is clearly not keeping that market in check.

  14. Vancouver is obviously an exception but it doesn’t disprove the rule. It’s one of the world’s great cities and international buyers pay a premium to live here. Step outside the high-end areas, however, and affordability rules.

  15. “At a 3% rate, a 1% rate hike translates into a 10% higher monthly payment. Since affordability drives the market, that would translate into a 10% decrease in home values, all things being equal.”
    That is questionable math to say the least. Not everyone needs a mortgage and most don’t buy to the limits of their budget. A 1% rate increase would not impact most people. I agree that rate increases will have a negative impact, but it’s not necessarily a proportionate relationship.

  16. So 3.8 for a 10 year mortgage on a rental house would be a good investment? As long as things go smoothly. (rent paid, house holds up,great location and good province)Instead of stocks or bonds. Interest rates will rise but the house will rise more. I’m thinking piece of mind might be worth a percentage point. I mean under 4% for 5 or 10 years who would have ever thought that would happen.

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