If it wasn’t already immediately apparent, there’s new figures confirming what most of us have known for some time – it is increasingly difficult for young Canadians to save for the purchase of a first home.
Here at Real Estate Leads, we understand that we provide a valuable service in helping realtors build their business, but we know that there needs to be a health housing market in place for realtors to have the successes they have for both themselves and their clients. It’s for this reason that news stories like this should be of some concern for all.
According to a new report from Mortgage Professionals Canada, it now takes about twice as long for the average Canadian worker to save for a down payment as compared to what it did 15 years ago.
The survey from the fall of last year indicated that the rapid rise in house prices have resulted in down payments on the average home increasing significantly compared to the average income. The Canadian Real Estate Association confirms this, reporting that the time required to build up a down payment is equivalent to 102 weeks when working with the average wage in Canada. 15 years ago, it wasn’t even half that.
The widespread understanding amongst those in the industry is that incomes have not risen at all in comparison to house prices. Those first-time buyers are taking significantly longer to amass the means for a down payment. Keep in mind also that first-time home buyers can’t simply save every paycheque towards their down payment, and others still may even be working with an income that’s below the national average, which of course means it will take even longer for those folks to save for their down payment.
Naturally, that could be even longer still in Toronto and Vancouver where home prices have risen more drastically over the last decade plus. In other areas where house prices are more in line with average incomes, it could be shorter. It seems also that down payments for first-time homebuyers have continued steadily at about 20 % of purchase prices.
Loss of Purchasing Power
With this understood, it’s easy to sympathize when you learn next that saving up for a down payment is but one of a few hurdles first-time buyers may face in today’s market.
October of 2016 saw new mortgage rules requiring buyers with a down payment of less than 20 % to qualify for the Bank of Canada’s 5-year fixed rate of 4.64%. This examples a more robust mortgage “stress test” that is designed to ensure a borrower can still make their mortgage payments if interest rates increase – or their income decreases.
All in all, it does make for a more expensive loan, and that’s still true even when they don’t have to make higher payments. Do these new rules hit first-time buyers the hardest? Most seem to thinks so, and specifically in that it strips them of a good portion of their purchasing power. Some buyers need every dollar the banks will give them, and even the slightest inadequacy may squeeze some of them out of qualifying for home ownership.
While it always comes back to the simple economics of supply and demand, the reason that this trend is troubling is that it seems a good number of the people who are being affected by this are the same ones being chronicled in the news for their moving away from cities because they simply can’t afford to house the families at an acceptable level there. Oftentimes these are young professionals who have long-term value to the overall prosperity of the community, and those communities don’t want to lose those people.
Here’s a way of putting it in perspective for you. If, say, a buyer with 10% down and who currently is eligible for a $527,000 mortgage will only qualify for $420,000 under the new rules. That computes to a roughly 20% drop in purchasing power
That statistic there really sums up the potential stumbling point that many otherwise fully-qualified buyers may have in Canada in the future. We hope that Federal initiatives will be undertaken to maintain the affordability of housing for all Canadians, and believe that there will be a positive correlation between that and the real estate industry we all work within.
