I live in a modest home on the Hamilton mountain where middle class Canadians mostly live. A cute little ranch home just sold around the corner from me, and like any nosy neighbour would do, I looked up how much it had sold for. It went for approximately $385,000. On the surface, I was happy since it sold quickly, for a good dollar, and that my neighbour has good marketability. Then I thought, it was only seventeen short years ago that I bought my first home in this subdivision for less than half the price of what sold around the corner. It got me thinking about my kids and how they will buy their first home.
As a mortgage broker in Hamilton Ontario, there is no better feeling than helping a family refinance their home and educate them on better cash management. The other amazing part of my job is placing first time homeowners in their new home. As a seasoned mortgage planner, it gives me great joy to see the smiles that those first time homebuyers have with their dreams and hopes.
I began to think of my clientele this year and how many fewer first time homebuyers I’ve had. I mean, it is not hard to figure out why. In spite of incredibly low mortgage rates in Canada, home prices and saving for a downpayment had to be the biggest obstacle for these rookie buyers. So I decided to do a little research and as a result, came out with these facts:
First time homeowners among 25 to 35 years old have fallen from 55% to 50%
Out of 10 hopeful homeowners, 6 are delaying their first purchase with a 39% giving price as the reason
Youth unemployment rates are 2.4 times more than that of adults
With unemployment being so prevalent, kids are spending their money on more education to upgrade their qualifications
Today’s youth put their emphasis on experiences like friends, fun and travel
Lower wages, rising prices and new, tougher mortgage rules have cut out many homeowners
The youth are more comfortable living with Mom and Dad for longer (following the trend in Europe)
61% of goal-oriented first time homeowners have made significant cutbacks to lifestyle in order to afford their first home
42% of first time homeowners needed financial help from Mom and Dad
These strong economic trends above do not have me very encouraged for the housing market in the long run. The first time homeowners are starting to feel the impediments of the market. But who is next? Most likely it will constrain the move-up buyers and eventually it will affect the high end homebuyer. With the low Canadian mortgage interest rates, values have been stretched. But look at this statistic from the city of Ottawa between 1990 and 2012. Median incomes have increased by 68% while home values have increased by 147%! Something has to give.
I hope people do not believe that I’m a gloom and doomer. I am a realest. My eldest daughter is entering her second year of university in September, and I truly worry for her and all of the other kids. I am not only discussing buying a home, but future employment as well. Although I love economics, my greatest pleasure would be for my prediction to be incorrect and that life be positive for our future youth.
Robert Floris is an independent mortgage broker at Mortgage Architects in Hamilton Ontario.