First-time homebuyers are spending more, an average of $316,100 (+5.4% vs. 2013), says BMO. And with the national average home price smashing records and hitting $406,372 last month, that’s to be expected.
First-timers in Canada’s priciest cities pay a hefty premium for their shelter: Vancouver (a whopping 60% more than the national average), Toronto (29% more) and Calgary (15% more).
Probably the most important stat, however, is this one:
One-third of respondents to BMO’s survey say they’re willing to exceed their budget to buy “the right home.”
As mortgage advisors, we’re responsible for recognizing when folks stray too far over their budget. We should be testing borrowers, using methods like:
- Debt ratio analysis (How much of a cash flow buffer do they have each month?)
- Stress-testing (How could higher rates at renewal impact their cash flow?)
- Contingency planning (What’s the fallback plan if home prices plunge and they go into negative equity, or if their income drops?)
On the equity front, BMO says the average first-time buyer’s down payment held steady at 16% ($50,576). That number (16%) may surprise some people. CMHC’s average 2013 buyer at 95% loan-to-value had less than $15,000 equity.
Here’s another stat of note: 39% have delayed their home buying due to “rising real estate prices.”
Despite industry arguments that mortgage rules are working and home sales have “moderated,” yada yada, prices keep marching into the stratosphere. A shortage of desirable inventory, low rates and a host of other factors is compelling and/or enabling Canadians to pay more for the house they want.
As of February, home prices were 10.1% higher than the year before — a rate of growth that’s well above the long-term average. Of course, Vancouver, Toronto and Calgary skewed the average, but a large slice of the population lives in those areas. At this pace, it may be only a matter of time before policy-makers tighten the vice on mortgage rules…again.
More: BMO / Pollara’s Report
- 30% of first-timers expect parents or family to chip in on their homes
- 61% claim they’ve made cutbacks to their lifestyle to save more for their purchase
Rob McLister, CMT (email)