New Buyers Raise Their Ante

first-time-buyersWhen some people think of first-time home buyers, they picture young people shoehorning themselves into a property with the minimum possible down payment.

That’s not the norm, according to two new surveys from BMO and Genworth.

The BMO study finds that typical first-timers expect to spend $300,000 on a new home. That’s 19% below the current average home price of $368,895 (source: CREA).

More interestingly, prospective newbie buyers plan to put down an average of $48,000 (16%). That’s higher than what previous data has suggested.

  • In 2012, CAAMP found that only 11% of renters have a $30,000+ down payment. The average renter’s down payment was $21,000.
    • Do first-time buyers living at home accumulate a bigger down payment than renters?
    • Do they get more support from mom and dad? (BMO says 27% of first timers expect down payment help from their family.)
  • 41% of all home buyers put down less than 10%, according to 2010-2012 data from Will Dunning.
    • That number includes all home buyers. One presumes the number would be higher if only first timers were polled.
  • Genworth Canada has told us that the average down payment for borrowers in its insured portfolio is 7-9%. That includes all borrower types, not just first-timers. Albeit, first time buyers are the bulk of Genworth’s business. “…We estimate that the majority of those purchasing a home with mortgage
    insurance are first-time homebuyers,” the company said.

Down-PaymentIn any event, it appears that young buyers are somehow saving bigger down payments all of a sudden.

According to this week’s Genworth/CACCS survey, 56% of recent first-time buyers put down more than 20% on their homes. Last year, just 36% claimed to do the same.

What’s more, the proportion of borrowers saving more than five years for a down payment rose by over 50%, says Genworth. But that may be due largely to higher prices and tighter approval guidelines.

BMO finds that 59% of first timers held off buying their first home due to elevated housing prices. Moreover, 19% of first-time purchases have been deferred due to stricter qualification rules (including last July’s amortization reduction to 25 years on high-ratio mortgages).

Other findings from BMO:

  • The typical age of a first-timer buyer is 29.
  • Rookie buyers expect to be mortgage-free in 20 years (at age 49 on average), which is eight years less than what this recent CIBC poll suggests. Age 49 seems somewhat optimistic given debt trends and conflicting surveys.
  • First-time buyers are twice as likely to take a fixed rate than a variable rate (46% vs. 20% who choose variable rates).
  • Young buyers are risk averse. 39% of those who expect flat to declining rates still prefer fixed rates over variable rates. Only 23% of those who forecast flat/declining rates favour variables.
  • First time buyers in Alberta expect to pay the most for a new home: $406,000. B.C. is next at $384,000. The Ontario average is $326,000.

Rob McLister, CMT

  1. Rookie buyers expect to be mortgage-free in 20 years (at age 49 on average), which is eight years less than what this recent CIBC poll suggests.
    This kind of massive divergence doesn’t install any confidence in the survey.

  2. Hi LS,
    I’m not sure if this explains the entire difference but CIBC’s data includes all homeowners while BMO’s is first-time buyers only.
    First-timers are optimistic by nature. Older homeowners may be more realistic because they’ve experienced how life interferes with finances.

  3. Our three offspring are 20, 25 and 27. They’re quite sober-minded about home-buying and their finances. It’s best reflected in their thoughts of home ownership. The oldest bought early – a triplex in NB. The next won’t buy a home until he’s through an apprenticeship and the youngest will try to marry into wealth :). But most poignant to them has been our financial mistakes – they saw first-hand how significant our choices were.

  4. Ah ok. Missed that difference.
    Overall though I don’t think this type of survey is very meaningful. Asking people who haven’t bought what they expect to spend and what they expect to put down for some hypothetical purchase up to five years in the future is going to get some wild answers.
    Much more useful to get accurate stats on what first time buyers are actually buying, and what their actual down payments are. I’m disappointed that this data (average down payment for first timers) doesn’t seem to exist.

  5. Hi LS, You’re right that actual consumer behaviour is often more telling. Although, sometimes it’s too early in a trend to get actuals, so we have to rely on expectations.
    When it comes to expectation surveys, the value is not so much the specific predictions, but rather how the expectations compare to prior periods.

  6. I expect that a lot of first timer down payments are inheritance gifts or loans from the parents. It takes a lot of determination to save money in today’s economy and avoid buying all the digital toys available like huge TV’s and new cars. The down payment keeps many buyers out of the market. Paying off a mortgage early also takes a lot of self control and money management.

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