November 15, 2019

Why first-time home buyers are still taking the plunge

First time-homebuyers are a major market force.

 

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Canada’s decade-long housing boom shrank to a three-way race this year with Toronto, Calgary and Vancouver the only markets still showing better-than-average growth.

As we head into 2015, the field has shrunk to two. The collapse of oil prices is denting the Alberta economy, hurting the prospects of those living in its biggest city. The Canadian Real Estate Association said last week that the average price of a Calgary home was 9.5 per cent higher in October than a year ago. But as Robert Kavcic, an economist with BMO Capital Markets, told the Calgary Herald, what’s in the rear view mirror ain’t what lies ahead .

“We’ve seen the highs for home price growth in this city for a while,” Kavcic said.

Should we be worried, too? I don’t think so. Price increases will moderate as interest rates slowly rise, but that’s no cause for panic. Home ownership is about a place to live, so the horizon should be long. While the big gains for condo investors may be over, for those who plan to live and work in Canada’s largest and most desirable city, waiting probably won’t help. If they’re forming households or just tired of paying rent, they might as well pay themselves first. That’s the prime law of personal finance.

This year, Toronto house prices are on track for another record. They were up almost 9 per cent in October compared to a year earlier driven by a shortage of listings. The average home price in the GTA was $587,000.

The driving force as we all know is a rock-bottom interest rate. Mortgage rate aggregator Ratehub.ca was quoting a five-year fixed mortgage Monday through Canwise Financial at 2.69 per cent. If you borrow $400,000, the monthly payment is $1,830 at that rate.

A five-year mortgage at less than 3 per cent offers insurance against a weakening market and time to chip away at the mortgage principal.

An annual study by the Canadian Association of Accredited Mortgage Professionals (CAAMP) confirms that first-time buyers are thinking along those lines. Far from being naïve, they’re aware of the risk and coming in with hefty down payments (as they historically do) and locking in for longer terms. CAAMP says about eight out of 10 borrowers are opting for fixed, longer-term mortgages, typically five years.

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