More Young Buyers Being Sidelined

First-time-Homebuyer-MazeWhen Ottawa cut the maximum allowable amortization and gross debt service ratio on insured mortgages, it was bound to have a disproportionate impact on first-time buyers (FTBs). Young buyers are extra sensitive to anything that impairs affordability.

That may explain why first timers are staying out of the market in increasing numbers, at least according to a new RE/MAX survey.

The survey suggests that only 30% of prospective buyers over the next two years will be FTBs. If that doesn’t seem unusual, consider that 43% of buyers were first timers as recently as 2009.

The trend in FTB activity has steadily fallen for more than three years.


Chart source: RE/MAX, 2013

“There’s no question that first-time buyers are experiencing a period of readjustment,” says Gurinder Sandhu, EVP and Regional Director of RE/MAX Ontario-Atlantic Canada. “…Affordability took a hit in 2012.”

That affordability factor has been hurt by more than just mortgage rules. Another reality delaying FTB purchases is that home prices in some areas have risen at over double the pace of income. That’s left young people with fewer options than older buyers with more resources.

The survey revealed other notable stats as well:

  • 36% of intended home buyers earn less than $50,000.
  • 40% of purchasers aged 18-34 intend on putting down 20% or more on their home.
  • 7% of buyers expect to make a down payment of 5%.
  • 14% plan to put down 10%.
  • Of all buyers putting down 30% or more, 45% were aged 55+.
  • Just 1% of those surveyed intended to spend over $1 million on their home.
    (Killing high-ratio mortgage insurance on homes over $1 million was a politically easy target for Jim Flaherty. Yet, of the four mortgage rule changes last July, this one will have the least practical effect on reducing insurer and governmental risk.)

Survey details: RE/MAX says that this national survey, hosted on the Angus Reid Forum in December, was conducted among 1,109 prospective purchasers who intend to buy within the next 24 months.

Rob McLister, CMT

  1. More young buyers sidelined is not a bad thing, especially when more than a 1/3rd of the new buyers earn below 50,000.
    Home ownership is not a right, it needs to be earned. Homer ownership in Canada is already at its peak @ 70% of the households.

  2. I tend to think that it is the first timers that we want to have access to the housing market. They are the ones that want a place to raise a family and will want to put improvements into the home especially if it is a resale. This leads to job creation throughout the community. Unfortunately tightening the rules has an unwanted ripple effect throughout the community.

  3. The survey is based on intentions, rather than realities.
    One cannot help but wonder if the respondent’s intentions may not correspond to their eventual reality.

  4. “That’s left young people with fewer options than older buyers with more resources”
    I think that is called “life”

  5. Keep waiting.
    Wiping out housing options for capable borrowers is never a good thing. The market will correct itself. We don’t need Big Brother dictating home prices for hard working Canadians who pay their bills.
    I would also remind you that income alone is not a good default predictor. Someone could make $45,000 and still easily carry a $250,000 mortgage.

  6. VJ – If you don’t want big brother influencing prices then call for an end to CMHC (probably one of the best examples of big brother there is).

  7. Hi RF,
    That quote refers to options in a general sense (e.g., the choice of renting vs. buying, buying 50km from work vs near work, having an extra bedroom for a new child, etc.). Naturally, first-timers don’t deserve anything they can’t afford. But in many ways it’s desirable to help creditworthy young borrowers qualify for a “suitable” home. In turn, the housing system (despite needing tweaks) has been structured to promote that.
    So far, the government has tightened insurance guidelines four times to mitigate risk. To the extent that pushes materially risky borrowers out of the market, it’s a clear positive. But it has also created an economic and social cost for certain otherwise qualified borrowers, especially first-time buyers. It becomes an interesting question of cost versus benefit, but one that takes much more analysis for an intelligent answer.

  8. “It becomes an interesting question of cost versus benefit, but one that takes much more analysis for an intelligent answer”
    Agree whole-heartedly but as a realist, this is never gonna happen, at least not from a non-biased source and from one that the government will actually act upon.
    And let’s face it – high real estate prices are the real reason FTBs need this help in the first place.
    PS – neglecting to mention the tightening was an unwinding of loosening of equal magnitude is evidence of your industry’s bias.

  9. RF,
    This publication’s position on mortgage rules is fully disclosed and well documented, but that is separate from the topic at hand. Suffice it to say, you seem to suggest that the prior loosening of policies had no merit. In fact, it had both negative and regrettable side effects (as implemented) as well as positives for those highly qualified borrowers who live within their means and benefit from cash flow flexibility. This is something that’s been well covered here and we don’t rehash the same positions every time we mention mortgage rules.
    Clearly, “bias” is an emotionally charged term that’s typically synonymous with some sort of prejudice. You’re free to use it in that manner if you wish. But one can just as easily have a bias towards facts and reason. That’s our ultimate goal here, and readers will judge for themselves if we’re doing a good job at it.

  10. I won’t say either way, but it’s easy to see how those who are ‘first past the post’ appear to be out of touch with the idea of real affordability, in comparison to ‘what it used to be’. That said, sometimes the young ones do bite off ‘a little more than they can chew’.

  11. Landlords should be loving Flaherty right now. His mortgage policies will singlehandedly shrink rental availability and raise rents across the country.

  12. Its big brother that makes home available at 5 10 or 15 percent down in the first place. So you can’t argue that the government is meddling in the free market. They are just meddling a little less by pulling back vj

  13. The problem (in my opinion) is that the “loose” lending standards of 2006-2012 were combined with the public’s low financial literacy, and Canadian Banks’ that apparently can’t regulate themselves.
    I can see Rob’s point that lending standards on their own don’t cause issues… however, the Big 5 banks have been lending like to continue making their quarterly earnings numbers (and then offloading the risk to CMHC). Also, Joe Q. Canadian has been using mortgage debt to “pay off” other debt (i.e. consolidate), which on the surface looks like a good thing, but only if you actually stop the spending which led to the consumer debt in the first place. Given the ever-rising Debt-to-Income ratio for Canadians (now 165%), it seems that people aren’t fixing their spending habits.

  14. The survey is flawed to start.
    Without generalizing too muchthen again that IS what surveys do.lumping a demographic of 18 to 34 year olds together makes no sense. If they broke this demographic down into three groups the survey would have more credibility.
    18-24 year olds usually have other things on their mind than buying real estate.25-29 year olds may start in earnest to search for a first home, & 30 to 34 could be looking to move up to a second home.
    The importance of first time buyers to the real estate economy(reale state sales, financing, construction , appliance purchases,etc) should not be underestimated in the overall economy.

  15. While I understand putting in restrictions to mitigate risk, I do believe taking out a chunk as big as 13% out of the housing market is as bad for business as a few defaults. Lets be honest of the 13 percent that have been disqualified due to the new regulations, how many do you think would default.
    Terminal Renter makes a very valid point. Which makes me wonder about the true intentions of these restrictions?

  16. With defaults at a very low rate, near or at the lowest in history, why tighten the rules? Is it to get the default rate lower, or is it for some other purpose like lowering housing prices to attract more people to come to Canada?
    I do like that houses prices are being slowed down but it is unfortunate that FTB are the ones taking the hit. Someone has to buy your old houses if you want to move up the property ladder and STB and MTB wont want them.
    As a landlord, the new rules are good for me because they force FTB into being renters but since I wish to own more properties, I may not be able to move ahead for a long time without taking on investors or partners.

  17. I don’t see the concern. What does it matter how many 18-24 year olds buy a house? That barely affects the number of first time buyers anyway.

  18. The Canadian Press – Most of Canada’s biggest banks have been downgraded by the Moody’s rating agency, which believes they will be more vulnerable than in the past if there’s a major shock to the economy.
    The latest downgrades Monday, reflects the agency’s ongoing concern that Canadian household debt has risen to historical highs — putting pressure on the banks’ mortgage businesses.
    Any questions now on why the Feds are throttling the mortgage market? Always easier to slaughter lambs than sheep!

  19. Changes were needed but not so drastic. Those who were responsible borrowers and well planned ahead of time are affected. Qualifying for a mortgage and the affordability will get even harder as rates moves up soon in 2014. Home ownership should not be for rich people only. Average people should be able to afford to buy a home.
    Atefeh Shirakan

  20. Great article Rob..
    I have said it many times in the past and will say it again, with 23 years in the business I saw a drastic shift in debt when the banks opened up their combined mortgage and credit line products. A lot of customers put in this product can’t handle paying down credit lines and when you see someone buy their first home at 95% LTV and 2 yrs later they have one of these products, you wonder why the debt has risen so high. It would be safe to say many of these people really do not have the 20% equity they think they do. So punishing first time buyers especially single parents who want to just to own a home does not make sense, they should have regulated other products and ability to get easy debt.

  21. What’s the decade average for first-time buyers? Plucking out 2009 to make a point implies, frankly, that 30% is still above average.

  22. Nothing wrong with keeping people in the rental market. Owning a house is a privilege, not a right. People today get in way over their heads with expecting to have huge homes and then max out their credit to do it. Tougher mortgage rules is a good thing.

  23. The best way to improve affordability for first time buyers would be to take CMHC out of the equation, let the housing bubble pop, take the short term pain, and allow prices to return to historical norms as dictated by the cost:earnings and cost:rent ratios like has happened in the rest of the world. CMHC’s mandate to make housing accessible to all has been achieved (70%) but it certainly hasn’t done so by making “affordable” housing accessible. Also putting tougher restrictions on foreign ownership would be a nice start as well.
    Prices are too high. But hey, as long as we keep selling houses and lending mortgages, the transaction fee takers will keep making a killing.

  24. Please don’t ever try to start making a factual case by beginning “moodys or s&p” rating agency said
    you loose us right away. We all know their track record and pay for reporting bias

  25. As a first time homebuyer the new mortgage rules have not had much effect on me as the insane price increases in homes. I really think more FTBs will be renting. The cost of living has gone thru the roof. Even with a sizable down payment, excellent credit history, income above $60K housing choice are extremely limited.

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