In Toronto, Vancouver and a few other urban Canadian neighbourhoods, a young, highly educated, largely professional Asian population is driving condo demand. Elsewhere, older Canadian couples can’t downsize because their adult children haven’t been able to launch successfully. Each group – identified by Environics Analytics PRIZM5 data – represents one of68 clusters of consumer types who tend to congregate in particular neighbourhoods across the country.
David MacDonald, group vice-president, Custom/Financial for Environics Research Group, who has studied Canadian homebuyers for a decade, says there is no such thing as a single, homogenous Canadian real estate market. While headlines focus on Vancouver’s $2-million teardowns, there are many smaller towns where home prices have risen more slowly, he adds.
As for the larger market patterns, Mr. MacDonald notes that the numbers stay relatively consistent: at any given time, about five or six per cent of Canadians have bought their first home in the past two years; eight or nine per cent are recent repeat buyers; about half have owned their home for more than two years and are not looking to move anytime soon.
There are some shifts underway, however. “We’re seeing more older Canadian couples breaking up than we’ve ever seen before, and it throws a grenade into the retirement plan. Typically, they share a larger home, but they can’t simply buy two suitable homes with their share of the sale proceeds. Usually they have to incur more debt, or cash in retirement savings,” he says.
The Environics research also reveals some trends that seem counterintuitive in the face of concerns about affordability. “When we look at buyer confidence, despite some of the amortization and down payment changes, we see that first-time buyers have adapted. In the major markets, they’re putting down a larger proportion of the home price than in other areas,” reports Mr. MacDonald. “This is partly driven by the fact they’re more likely to be buying condos and townhomes, but it also reflects the involvement of parents, with about 30 per cent receiving family support.”
RBC’s 2016 Home Ownership Poll echoes this trend, showing that the average down payment has increased to $57,000, up 12 per cent over 2015. And confidence is high: 87 per cent of Canadians believe that buying a home is a very good or good investment, up from 84 per cent last year.
When it is time to buy, however, people in many markets – particularly Vancouver and Toronto – are finding it is harder than expected. “There just aren’t as many homes on the market as there are people who would like to purchase,” says Erica Nielsen, RBC’s vice-president of Products and Segments, Home Equity Financing. “It can be disheartening, especially when there are bidding wars.”
When supply is limited, it can be tempting for buyers to overreach their budget. “Whatever it is that is important to you, whether it’s entertainment, vacations or extra savings, if you have to sacrifice too much, the mortgage payment may not work for your life,” she says. “You don’t want to be so constrained that it feels uncomfortable.”
Buying a home is a highly emotional process, so getting good advice from a realtor and mortgage professional is critical, and talking to family and friends who have recently been through the process can help prevent unpleasant surprises, says Ms. Nielsen. She says that when she bought her first home, “I didn’t realize that it would cost me $250 to buy everything I needed to paint a room. Plus the lawn mower and the snow shovel – all the small things really add up in your first year or two of home ownership.”
Ultimately, it’s important to remember that buying a home is a long-term investment, says Ms. Nielsen. “Make sure you really understand the implications of the purchase. It might make you sit on the sidelines six months longer to have a little bit more for your down payment, which may make you a more satisfied purchaser. That’s a better outcome.”
Despite rising prices in many markets, first-time homebuyers are still finding that low interest rates mean buying can be more economical than renting, says accredited mortgage professional Paula Roberts. “I’m doing a mortgage right now for somebody who pays $1,800 a month for rent in downtown Toronto. He bought a condo for $325,000 – he had to come up with the down payment, and he’ll have condo fees and taxes, but he’s going to own it for within $100 of what he paid in rent.”
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