Condo purchases by first-time
buyers expected to double in three years
Posted 8/25/2005
By Tara Perkins
TORONTO (CP) - Condominium purchases by first-time buyers are forecast to double in the
next three years, according to a report released Thursday.
However, that doesn't necessarily translate into an increase in condo sales, because the
number of first time buyers is expected to drop, said Phil Soper, chief executive of Royal
LePage Real Estate Services, which issued the report.
"First time buyers typically represent 40-to-50 per cent of transactions that occur
in a given year," he said in an interview. "For the last three years, that
number has risen to close to 70 per cent."
While new buyers have played a large role in fuelling Canada's hot housing market, they
will also be key to the expected cooling down of that market as interest rates rise.
About 37 per cent of renters say they might buy a home in the next three years, compared
with 42 per cent last year, the report said.
"The market for first time homebuyers will start to be satiated," Soper said.
"The impact on the overall number of homes sold in Canada will begin to fall to more
normal levels."
But, he added, those buyers who are still looking to get their feet wet in the real estate
market are "increasingly attracted to condominium-style home ownership versus
detached homes."
In the past five years, 10 per cent of first-time buyers opted for a condo, while more
than one-fifth of renters looking to buy said they would make that same choice.
The report also found that many new homebuyers could benefit from doing a little more real
estate homework as they take the ownership plunge.
"First-time buyers are well aware of the possibility of interest rate increases and
factor them into their decision to buy, but their awareness on how an interest rate
increase could affect their future finances is surprisingly low," said Soper, who
runs one of Canada's biggest real estate agency companies.
Royal LePage asked new homebuyers: "If you have a $150,000 mortgage and the interest
rate increases from five per cent to six per cent, approximately how much more would you
pay over the next 10 years?" |
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18 per cent answered correctly - $10,000 to $15,000 - while about 40 per cent said they
didn't know the answer.
"The results were interesting, in that such a significant number of these people are
making what is certainly the largest financial commitment they've made in their life, and
really don't understand the financial aspects," Soper said.
He says home-shoppers should learn what effect interest rates will have on their payments,
explore different mortgages and compile a detailed budget, "then work backwards to
find out how much home they can afford, rather than just taking the largest mortgage they
can get."
Charles Lambert, managing director of mortgages at Scotiabank, echoed that warning.
"With interest rates expected to drift modestly higher over the coming year, it's
important that first-time homebuyers have a strategy in place to properly structure their
borrowing," he said.
"A significant increase in mortgage rates could impact the ability of first time
buyers to support their mortgages in expensive cities like Toronto and Vancouver,"
Soper said. "That's where the real pain would be felt, especially if they've used a
high-leverage product. And many of them are, using RRSPs and low downpayments."
Thursday's report notes that, in Winnipeg, move-up buyers are already driving most of the
housing activity, although first-time buyers are still active.
"The low cost of borrowing money has made it possible for many entry level buyers in
Winnipeg to purchase larger, more expensive homes than they have in the past," it
said.
A shortage of for sale signs has forced buyers to be more open-minded about the type of
house they choose in that city, the report added.
That contrasts with Ottawa, where new home construction has boosted choice. "The bulk
of first-time buyers in Ottawa have been searching for condominium properties priced from
$140,000 to $180,000," the report said.
First-time buyers in Regina are looking to older neighbourhoods like Rosemont and Arnheim
Place, priced at or below $100,000, it said.
In Saskatoon, first-time buyers represent about 25 to 30 per cent of housing activity,
while in Vancouver "first-time buyer account for a significant amount of market
activity." But escalating prices in the future home of the Olympics "have made
condominiums virtually the only affordable option" for those looking downtown, the
report said. |
