Condo ownership to jump among first-time buyers

Royal LePage survey: Condominium ownership to jump among first-time buyers — First-time homeowners require understanding of ownership costs —

TORONTO, Aug. 25 /CNW/
First-time buyers will increasingly favour condominiums with the rate of condo purchases projected to double among this group in the next three years, according to a report released today by Royal LePage Real Estate Services. Of those who bought their first property in the past five years, 10 per cent bought condominiums, while 21 per cent of potential buyers(*) intend to purchase one. Detached homes are expected to account for a smaller proportion of sales among potential buyers than they have in the past five years.

The Royal LePage First-Time Homebuyers’ Report 2005 comprises a national omnibus poll of recent first-time homeowner and buyer attitudes (conducted by Maritz Research) and a market analysis of trends and activity in major markets across Canada.

According to Scotiabank, who participated in the report, strong economic fundamentals, low interest rates and flexible finance programs have made home ownership an attractive prospect for a diverse group of entry-level buyers. First-time buyers tend to be well informed on most aspects of buying a home, however the survey found that they demonstrated a need to focus more on long term planning. New homebuyers and potential buyers were asked: “If you have a $150,000 mortgage and the interest rate increases from 5% to 6%, approximately how much more would you pay over the next ten years?”

The majority of respondents (39%) said they did not know how much they would pay. Only 18 per cent of respondents estimated correctly ($10,000 to $15,000). “Today’s first-time buyers have a large volume of information and educational tools available to them. They are an incredibly savvy demographic when it comes to using the Internet to research the real estate market, neighborhoods and properties,” said Phil Soper president and CEO of Royal LePage Real Estate Services. “While they are more knowledgeable than first- time buyers in previous years, they are still largely inexperienced in the complexities of a real estate transaction.” Added Soper: “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.

We encourage first-time buyers to take both current and future financial needs into account.” “Despite the steady rise in home prices in recent years, Canadians’ mortgage servicing costs have remained close to record low levels – thanks to low interest rates and healthy income gains,” said Charles Lambert, Managing Director, Mortgages at Scotiabank. “Nonetheless, 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.”

Lambert advises potential homeowners to “do your homework – crunch some numbers and know what you can afford when you go out shopping for that house or condominium.”

(*) Potential buyers are renters who said they will potentially buy their first home in the next three years. New homebuyers are those who have purchased their first home within the past five years.

Payment Amount Comparison
    ————————————————————————————————
                              Monthly        Monthly                Total Increase
                             payment        payment                    in Payment
    Mortgage             amount         amount                   Amount over
     Amount             at 5%(*)       at 6%(*)    Difference       10 years
    ————————————————————————————————–
    $100,000            $581.60        $639.81         $58.21      $6,985.20
    ————————————————————————————————–
    $150,000            $872.41        $959.71         $87.30     $10,476.00
    ————————————————————————————————–
    $200,000          $1,163.21      $1,279.61        $116.40     $13,968.00
    ————————————————————————————————–
    $250,000          $1,454.01      $1,599.52        $145.51     $17,461.20
    ————————————————————————————————–
                                                          Source: Scotiabank
 

Interest is calculated semi-annually not in advance, and fixed for the term of the mortgage. Calculations are approximate and do not account for the payment of property taxes.

Additional poll findings:

 – Demand among first-time buyers is projected to ease following the furious pace observed in the market over the past several years. Among renters who never owned a home, 37 per cent said they would potentially purchase in the next three years compared with 42 per cent in 2004.

 – As condominiums increase in popularity, the popularity of bungalows is on the decline.

Thirty-three per cent of new homeowners purchased a bungalow, while only 25 per cent of potential buyers intend to buy one. Regional Summaries In Halifax, activity among first-time buyers has continued to gain momentum, as they are attracted to the market by low interest rates and good housing affordability. Entry-level buyers in Halifax tend to be cautious, doing a great deal of research on properties before committing to a purchase. Timberlea, Dartmouth and lower Sackville remain popular areas among first-time buyers. Current inventory levels in Montreal have been advantageous for first- time buyers, as a wealth of new home construction geared toward move-up buyers has in turn provided more homes that are available in the first-time buyer’s price range.

Condominium properties remain an affordable option for buyers in Montreal who are looking to live downtown. Entry-level buyers looking to secure a home in trendy areas such as Notre-Dame-de-Grâce are also benefiting from increased inventory of properties in their price range. The range of condominium properties available in Toronto offers first- time buyers several different choices that cater to a variety of different needs. Condominiums located in the Liberty Village on King Street West and the Distillery District on King Street East are popular among new buyers, as they are situated centrally and are close to grocery stores, fitness facilities, trendy bars, and shops. The level of activity for first-time buyers in the Ottawa marketplace has continued to stay strong in 2005, as consumer confidence, job growth and low interest rates continue to attract new buyers to the market.

Entry-level buyers are shopping around and taking more time to decide on a home, as new home construction has eased inventory levels, providing buyers with a greater variety of properties to choose from. The bulk of first-time buyers in Ottawa have been searching for condominium properties priced from $140,000 to $180,000. First time buyers continue to be an active purchaser group within the Winnipeg market, although move-up buyers fuel the majority of activity. With brisk market activity and a shortage of available listings, first-time buyers have to be more open minded about the style and type of home they are purchasing. 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. Activity among first-time buyers remains strong this year, representing approximately 25 to 30 per cent of the activity in the Saskatoon housing market.

Rising property prices have not slowed first-time buying activity in Saskatoon, as consumers are confident that the market is stable and that they will see their property investments increase in value. Activity among first-time buyers in Regina has cooled from the frenzied pace of last year. First-time buyers continue to be drawn into the market in Regina by low interest rates and good housing affordability. Entry-level purchasers without a great deal of money to spend are opting for older in older neighbourhoods such as Rosemont and Arnheim Place, priced at or under $100,000. Location remains a prime concern for first-time buyers in Calgary, but with property prices experiencing strong increases in popular areas such as Calgary’s core, many first-time buyers have to look to condominiums in these areas as an affordable option. Many entry-level purchasers are taking advantage of zero down mortgages to purchase their first home if they are eligible.

First-time buyers continue to be very active in Edmonton, representing a large portion of the city’s housing market. The strong provincial economy, driven by strong oil and gas industries is booming, providing an abundance of job opportunities and growth. With house prices experiencing considerable increases in Edmonton, many first-time buyers are now searching for homes outside the city core, or are looking to condominiums as a more affordable option. As housing market activity in Vancouver continues at a flurried pace, first-time buyers account for a significant amount of market activity. Escalating prices have made condominiums virtually the only affordable option for first-time buyers looking to purchase a home in downtown Vancouver.

Entry-level buyers who are looking to purchase a larger home have to look to suburbs such as Burnaby or North Vancouver to find an affordable property with more space to accommodate a growing family. The poll portion of the Royal LePage First-Time Homebuyers’ Report conducted by Maritz Research was run over two waves and completed on August 10, 2005. In total, 4,003 Canadians were surveyed. All interviews were conducted among a random representative sample of adult Canadians. More specifically, the research focused on first time homeowners who purchased their property in the past five years and intenders (those who will potentially purchase their first home in the next three years).

Due to this specific audience the actual number of respondents that qualified for this survey was 711. With a sample of this size, the results are considered accurate to within +/-3.68%, 19 times out of 20, of what they would have been had the entire adult Canadian population been polled. These data were statistically weighted to ensure the sample’s regional and age/sex composition reflects that of the actual Canadian population according to the 2001 Census data. Royal LePage is Canada’s leading provider of franchise services to residential real estate brokerages, with a network of over 11,000 agents and sales representatives in 600 locations across Canada operating under the Royal LePage, Johnston and Daniel, Trans-Action and Realty World brand names. Royal LePage manages the Royal LePage Franchise Services Fund, a TSX listed income trust, trading under the symbol “RSF.UN”. For more information visit www.royallepage.ca.

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This post was written by Hawker-Betts Real Estate Team