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.
Showing posts with label first time home buyers. Show all posts
Showing posts with label first time home buyers. Show all posts
Tuesday, November 23, 2010
Tuesday, September 28, 2010
Credit Scores May Hamper Housing Comeback
Taken from The Wall Street Journal
By Phil Izzo
Homeownership is potentially out of reach for nearly a third of Americans, according to a new report that highlights the difficulties in the housing market in the wake of the Great Recession.
Bloomberg News
Potential home buyers may be among the hardest hit by the recession.People with a credit score below 620 who went searching for a loan were unlikely to receive even one quote, according to real-estate web site Zillow.com, even if they offered a down payment of 15%-25%. Zillow notes that 29% of Americans has a credit score this low, according to data provided by myFICO.com.
“Today’s tighter credit is a predictable response by banks after the foreclosure crisis, but also keeps a cap on housing demand, which is important for the greater housing market recovery,” said Zillow chief economist Stan Humphries.
While banks may be right to try to avoid repeating mistakes made during the housing bubble, an over-reliance on credit scores could create problems for the real-estate market. Banks shouldn’t be giving mortgages to borrowers who can’t afford to pay them back, but if people with sizeable down payments and solid sources of income are being turned down because of credit scores, that’s not healthy, either.
Many factors influence credit scores. A temporary spell of unemployment and the resultant hardship can easily push them down. According to a new report from the Pew Research Center, the majority of Americans may find themselves in this situation. Pew separates its respondents into two groups, one that “held its own” — 45%, a number similar to myFico’s estimated 47% of Americans who have the best credit scores (over 720) — during the recession and another that “lost ground” — 55%.
The Pew report’s demographic breakdown may be even more troubling for housing. Those who “held their own” tended to be older people who already owned homes. Real Time Economics recently noted a potential “shadow demand” for housing from people who postponed plans to form new households in the wake of the recession, but that pool of potential homeowners was also more likely to have lost ground during the recession. According to Pew, 69% of people age 18-49 and 60% of those 30-49 lost ground.
It’s likely that those groups, who are the most likely first-time and move-up home buyers, took a hit to their credit scores during the recession. Zillow’s data indicate that even if they’ve recovered from the worst, the may not be able to get a mortgage, and if they do, they also are more likely to face higher interest rates.
“Today’s tighter credit is a predictable response by banks after the foreclosure crisis, but also keeps a cap on housing demand, which is important for the greater housing market recovery,” said Zillow chief economist Stan Humphries.
While banks may be right to try to avoid repeating mistakes made during the housing bubble, an over-reliance on credit scores could create problems for the real-estate market. Banks shouldn’t be giving mortgages to borrowers who can’t afford to pay them back, but if people with sizeable down payments and solid sources of income are being turned down because of credit scores, that’s not healthy, either.
Many factors influence credit scores. A temporary spell of unemployment and the resultant hardship can easily push them down. According to a new report from the Pew Research Center, the majority of Americans may find themselves in this situation. Pew separates its respondents into two groups, one that “held its own” — 45%, a number similar to myFico’s estimated 47% of Americans who have the best credit scores (over 720) — during the recession and another that “lost ground” — 55%.
The Pew report’s demographic breakdown may be even more troubling for housing. Those who “held their own” tended to be older people who already owned homes. Real Time Economics recently noted a potential “shadow demand” for housing from people who postponed plans to form new households in the wake of the recession, but that pool of potential homeowners was also more likely to have lost ground during the recession. According to Pew, 69% of people age 18-49 and 60% of those 30-49 lost ground.
It’s likely that those groups, who are the most likely first-time and move-up home buyers, took a hit to their credit scores during the recession. Zillow’s data indicate that even if they’ve recovered from the worst, the may not be able to get a mortgage, and if they do, they also are more likely to face higher interest rates.
Tuesday, July 13, 2010
Property Values Could Plummet If the Canadian Real Estate Bubble Bursts
The real estate market in Canada has performed well over the last few years but it could have resulted in a bubble that is ready to burst.
The Canadian residential sector has continued healthy despite the economic mortgage crisis that affected the US, and the forecasted nationwide real estate market bubble has yet to materialize. The Canada Mortgage and Housing Corporation's (CMHC) program to stimulate credit by approving high-risk mortgages had concerned experts because it pushed the ratio of housing values to a 7.4:1 ratio, which was over 50% more than American consumers experienced prior to their housing bubble collapse. As a consequence of the CMHC's policy shift, the average Canadian family debt experienced a 9.3 percent increase in only one year.
Some analysts, like the 84-year-old investment advisor Stephen Jarislowsky -- who has an estimated worth $1.85 billion -- said earlier this year that he believed that the strategy used by the CMHC would backfire. Jarislowsky flatly contradicted the statements made by Finance Minister Jim Flaherty claiming that the indications did not point to a future real estate bubble. Jarislowsky firmly believed that the government's programs were not going to strengthen the economy. During a phone conversation, he said that the CMHC "..has created the reverse effect of what was acceptable. " They have basically persuaded people to buy houses based on cheap mortgages. Evidence can be witnessed in the City of Toronto where the value of Toronto properties as increased by quite a bit over the years as purchasers rushed into the market.
An in-depth study of the Canadian real estate sector performed by the Wall Street Journal in February 2010 pointed out that the 2008 failure of the Lehman Brothers in the U.S. could have built a housing bubble backfire if the Canadian government did not change their lending tactics. But as early as January 2010, a representative of the Bank of Canada explained that "if the Bank were to increase interest rates to cool the housing market" that the result would be like "dousing the entire Canadian economy with cold water, just as it comes out from recession".
The Canadian Real Estate Association numbers that were released for the first half of 2010 does show that the start of the recession in 2008 translated into a sharp decline in residential real estate sales. But this did not last long, and the recovery has not been as dramatic as anticipated. Even though the May 2010 sales figures indicated a 9.5% drop, the year-over-year price increases actually balanced it to 8.4 percent. This stabilization in the housing market is a normal result of buyers not being quite as anxious to invest as the supply of properties increases and prices climb slowly, but proportionately.
Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble scenario "made a lot of people nervous," fearing a huge crash comparable to the 30% decline in U.S. housing values. This summer, however, he is observing that the short-term elements that elevated property values resulted in only a modest decline in a clearly overpriced market and the attitude is a "180-degree change from six months ago". Gauthier believes that the national average may feel a 7 percent drop, but that the areas such as Toronto and Vancouver will bear the brunt of that decrease, and some areas such as The Prairies and Maritimes could even begin to realize gains by the end of the year.
By Stefan Hyross
Published: 7/13/2010
The Canadian residential sector has continued healthy despite the economic mortgage crisis that affected the US, and the forecasted nationwide real estate market bubble has yet to materialize. The Canada Mortgage and Housing Corporation's (CMHC) program to stimulate credit by approving high-risk mortgages had concerned experts because it pushed the ratio of housing values to a 7.4:1 ratio, which was over 50% more than American consumers experienced prior to their housing bubble collapse. As a consequence of the CMHC's policy shift, the average Canadian family debt experienced a 9.3 percent increase in only one year.
Some analysts, like the 84-year-old investment advisor Stephen Jarislowsky -- who has an estimated worth $1.85 billion -- said earlier this year that he believed that the strategy used by the CMHC would backfire. Jarislowsky flatly contradicted the statements made by Finance Minister Jim Flaherty claiming that the indications did not point to a future real estate bubble. Jarislowsky firmly believed that the government's programs were not going to strengthen the economy. During a phone conversation, he said that the CMHC "..has created the reverse effect of what was acceptable. " They have basically persuaded people to buy houses based on cheap mortgages. Evidence can be witnessed in the City of Toronto where the value of Toronto properties as increased by quite a bit over the years as purchasers rushed into the market.
An in-depth study of the Canadian real estate sector performed by the Wall Street Journal in February 2010 pointed out that the 2008 failure of the Lehman Brothers in the U.S. could have built a housing bubble backfire if the Canadian government did not change their lending tactics. But as early as January 2010, a representative of the Bank of Canada explained that "if the Bank were to increase interest rates to cool the housing market" that the result would be like "dousing the entire Canadian economy with cold water, just as it comes out from recession".
The Canadian Real Estate Association numbers that were released for the first half of 2010 does show that the start of the recession in 2008 translated into a sharp decline in residential real estate sales. But this did not last long, and the recovery has not been as dramatic as anticipated. Even though the May 2010 sales figures indicated a 9.5% drop, the year-over-year price increases actually balanced it to 8.4 percent. This stabilization in the housing market is a normal result of buyers not being quite as anxious to invest as the supply of properties increases and prices climb slowly, but proportionately.
Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble scenario "made a lot of people nervous," fearing a huge crash comparable to the 30% decline in U.S. housing values. This summer, however, he is observing that the short-term elements that elevated property values resulted in only a modest decline in a clearly overpriced market and the attitude is a "180-degree change from six months ago". Gauthier believes that the national average may feel a 7 percent drop, but that the areas such as Toronto and Vancouver will bear the brunt of that decrease, and some areas such as The Prairies and Maritimes could even begin to realize gains by the end of the year.
By Stefan Hyross
Published: 7/13/2010
First Time Home Buyers Do Their Homework
Canada NewsWire
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. This is according to the first TD Canada Trust Home Buyers Report which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten are worried about being able to afford their home if interest rates rise.
"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. "I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed have or plan to have a fixed-rate mortgage. "Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. This is according to the first TD Canada Trust Home Buyers Report which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten are worried about being able to afford their home if interest rates rise.
"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. "I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed have or plan to have a fixed-rate mortgage. "Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
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