Many first-time home buyers understand the power of the big down payment
By Peter Simpson, Vancouver Sun November 20, 2010 Although Generations X and Y are vastly different (I have daughters from both demographic cohorts so, believe me, I know all too well), when it comes to listing the impediments preventing them from buying their first homes, the members of these two generations are as similar as the Sedin twins.
A survey conducted at the 16th annual seminar for first-time homebuyers -organized by the Greater Vancouver Home Builders' Association and presented by the Homeowner Protection Office, branch of B.C. Housing -revealed that high prices and insufficient down payments were the culprits, no different than the responses gleaned from the survey conducted at, say, the fourth annual seminar in 1997.
Alas, the high cost of developable land, exacerbated by an ever-increasing array of taxes, fees, levies and development charges imposed on new homes by all four levels of government, seems to be a constant challenge throughout what is arguably the most popular geographic region in the country.
That aside, what are the needs and expectations of today's typical first-time homebuyer? I will run through the survey responses and compare them with responses from last year, when the new-homes market was mired in a 10-year low, and from 2007, when the market was riding a 14-year high.
The survey results, tabulated by Canada Mortgage and Housing Corp., reveal that most potential first-time buyers are between the age of 25 and 34 and rent accommodation away from parents. They plan to purchase a home within a year and will be buying with a spouse/ partner. They prefer a two-bedroom apartment or townhouse between 800 and 1,199 square feet. Their target price range is $300,000 to $399,000 and most have down payments of at least 10 per cent of the purchase price. They value highly the benefits of warranty protection. Half the respondents indicated they will apply RRSPs towards their down payments, and more than half believe the HST will make it difficult for them to buy a new home, although if they buy a new home priced below $525,000, the HST has little impact. And, of course, there is no HST on the purchase of a resale home.
Following are the survey findings, rounded to the nearest percentage. In parentheses are the percentages from last year, then from 2007. There were 230 first-time buyers participating.
- 63 per cent (63; 77) of respondents cited high housing costs as the major obstacle preventing them from buying their first home; 30 per cent (32; 36) said an insufficient down payment was a stumbling block, while 22 per cent (22; 20) indicated they can't seem to find the home they want.
- 55 per cent (65; 62) of respondents currently rent accommodation, while 23 per cent (23; 25) live with parents. The remainder indicated various living arrangements -relatives, friends, co-op housing.
- 58 per cent (68; 59) will be purchasing their first home with a spouse/partner; 27 per cent (23; 33) said they will be buying their first home alone; 9 per cent (5; 6) said they will be buying a home with another family member, such as a brother or sister. Friends pooling resources is another scenario.
- 29 per cent (32; 28) said they plan to buy within six months, while 36 per cent (44; 40) indicated they would buy within one year; 17 per cent (14; 21) said their timeline is the next two to three years.
- 26 per cent (29; 30) said they plan to purchase a town house, 25 per cent (30; 27) a single-detached home, 24 per cent (24; 20) a low-rise condominium apartment and 19 per cent (19; 18) a highrise condominium apartment. Yes, there are many affordably priced single-detached homes available today, satisfying the need of many buyers for a patch of land they can call their own. Others appreciate the lock-it-and-leave-it lifestyle offered by maintenance-free townhouses and apartments.
- As similarly documented in previous years, there was no clear preference for location, although municipalities mentioned most were Burnaby, New Westminster, Surrey, Langley and Vancouver.
- 7 per cent of the respondents indicated their maximum price is under $250,000 (12 per cent last year; no comparables for 2007); 11 per cent (18) said $250,000-$299,000; 20 per cent (22) said $300,000-$349,000; 17 per cent (14) said $350,000-$399,000; 9 per cent (9) said $400,000 to $449,000; 8 per cent (10) said $450,000 to $499,000; and 22 per cent (13) said they will pay more than $500,000.
- 2 per cent (4; 11) said they have less than 5 per cent of the purchase price to use as a down payment; 20 per cent (20; 17) said they have 5 per cent down; 21 per cent (23; 31) said they have 10 per cent down; 12 per cent (15; 7) said they have 15 per cent down; 24 per cent (19; 12) have 20 per cent down; and 17 per cent (19; 21) have 25 per cent or more of the purchase price for a down payment. Buyers are advised to ask their lender, mortgage broker or realtor for advice on mortgage-qualifying rules.
- 10 per cent (7; 11) said they intend to buy a home smaller than 800 sq. ft; 19 per cent (19; 20) said 800-999 sq. ft; 18 per cent (20; 20) said 1,000-1,199 sq. ft; 12 per cent (18; 16) said 1,200 to 1,499 sq. ft; 10 per cent (9; 13) said 1,500 to 1,799 sq. ft; 10 per cent (12; 7) said 1,800 to 2,000 sq. ft; and 13 per cent (11; 9) said more than 2,000 sq. ft
- 15 per cent (9; 15) said they need only one bedroom in their first home; 44 per cent (48; 53) said two bedrooms; 28 per cent (33; 23) said three bedrooms; 7 per cent (7; 4) said four bedrooms; and 3 per cent (1; 3) said more than four bedrooms.
- 93 per cent (94; 93) said it was important their new home is protected by warranty insurance. Less than 2 per cent said it wasn't important. How can a solid home warranty not be important?
- 9 per cent (11; 11) of seminar respondents were under the age of 25; 49 per cent (49; 49) were between the ages of 25-34; 10 per cent (23; 22) were 35-44; 19 per cent (19; 8) were 45-54; 7 per cent (5; 6) were over 55. Some of the older respondents were starting over after marital breakups.
When it comes to choosing a realtor, first-timers will rely heavily on referrals from family or friends. Other information sources aren't even close. Asked how they will find a realtor, 63 per cent (71; 66) of the respondents indicated a referral from family or friends; 11 per cent (10; 8) said they will choose a realtor with whom they are somewhat familiar; 7 per cent (2; 5) said they will work with a well-known real estate firm; 4 per cent (6; 5) said Internet research and 4 per cent (3; 3) indicated a realtor's advertising presence would influence their choice of a realtor to help them search for a first home.
Seminar attendees were asked to indicate their most desirable features. The list was provided for them but respondents were free to add items to the list. Features deemed most desirable, in order, were energy efficiency, healthy indoor-air quality, finished basement, home office, in-house secondary suite, flex/adaptable features, earthquake-resistant design, green building and laneway housing unit.
During the next month, I intend to contact a few of the folks who attended the seminar this year, last year and in 2007 to find out if they bought homes and, if so, how their lives have evolved since they lost their property virginity. In a future column, I will share what I learned from the first-timers.
Peter Simpson is president and chief executive officer of the Greater Vancouver Home Builders' Association. E-mail peter@gvhba.org.
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