For many young Canadians, the new coming-of-age benchmark isn’t graduating from college, turning 25, or even getting married… it’s entering the property market. But the number of first time buyers is projected to be lower this year than in recent memory. What’s endangering the first time buyer segment?
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Few Multi Units Up For Grabs
The Canada Mortgage and Housing Corporation’s (CMHC) Housing Market Outlook for the first quarter of 2014 projects that housing starts (i.e. the number of new units constructed) for detached single-family homes will be remain stable through 2014 and 2015. But starts for “multiple housing units” (townhouses, row houses, apartments and condos) should start to decline in 2015. The lower price point for non-detached properties, of course, makes them a popular choice for first-time buyers. And the CMHC expects that there will be less of them.
A Demographic Shift
For starters, with the exception of Quebec, right across the country there’s a slight decline in the number of people in the 25- to 34-year-old age bracket, the primary age when Canadians purchase their first home.
Rising Rate Fears
The Bank of Canada’s benchmark rate has been locked in at a historically low one percent since 2010. Ever since that time, there’s been speculation that its inevitable rise is on the horizon. The CMHC report concludes that any rise in rates will cause a decline in home purchases.
That said, the report was compiled before the latest Bank of Canada rate announcement on January 22, 2014. The central bank has since stated that one of the reasons it’s keeping the rate steady at one percent is that inflation has dipped below two per cent. The release included the following comment: “The Bank expects inflation to return to the two per cent target in about two years…” which lead some analysts to speculate that the rate could remain unchanged until inflation does rise.
An Overbuilt Horizon
The final factor CMHC cites affecting the number of multi-unit housing starts is that supply currently outweighs demand. At the end of 2013, there were 3.0 multi-housing units vacant per 10,000 Canadians. The historical average is 2.3. As a result, developers will likely taper off on new construction until more of the existing inventory is bought up.
First Timer Tip – Cash In On Your RRSPs
If you are a first-time buyer trying to pull together funds for a down payment, don’t forget about your RRSPs. Under the federal Home Buyers’ Plan you’re able to withdraw up to $25,000 from your RRSPs (so up to $50,000 for a couple buying together) without any penalty. The funds need to be paid back over the following fifteen years. Just don’t forget to make your annual payback. If you miss a repayment, that year’s portion will be added to your taxable income for the year.