With rock bottom mortgage rates and stalling housing prices you’d think home buyers would be jumping into the housing market in droves. Unfortunately, that doesn’t appear to be the case. Fewer than two in 10 (15 per cent) are likely to purchase a home in the next two years, according to a recent survey conducted by Ipsos Reid for RBC. This is a steep drop from last year when nearly three in 10 (27 per cent) intended to buy a home. This represents the biggest drop in 20 years. With home buying intentions at an all-time low, why are home buyers all of a sudden getting cold feet?
Home Sweet Home
Although 85 per cent of Canadians are not likely to purchase a house in the next two years, a large majority (84 per cent) still believe buying a home is a smart investment. Despite nearly nine in 10 responding that they don’t intend to purchase a home, nearly half (52 per cent) said it’s still a good time to get into the housing market. These survey findings are in stark contrast to last year’s house market, when the spring market got an early start due to downright balmy temperatures in January and February.
Interesting enough, home buying sentiment seems to be split across the country. Nearly two-thirds (64 per cent) believe it’s a good time to buy a home now in the Atlantic Provinces. In pricier markets like Ontario, an overwhelming majority (86 per cent) do not intend to buy a house over the next two years.
Recent Mortgage Rules Sideline Home Buyers
The government looks to have succeeded in slowing down the housing market with the fourth set of mortgage rules introduced mid-2012. This was the number one reason home buyers are taking a wait-and-see approach. The survey found 75 per cent said the new mortgage rules will make it tougher for home buyers to get into the market. Among the new mortgage rule changes, 38 per cent believe the requirement for a five per cent minimum down payment and the shortening of the maximum amortization to 25 years for high-ratio mortgages will make it tougher to afford a home.
First-Time Home Buyers Still Hopeful
Despite the tougher mortgage rules, first-time home buyers represent the one bright spot of the survey. Of those who intend to buy a house in the next two years, four in 10 (40 per cent) are first-time home buyers. Although there are slightly fewer first-time home buyers who intend to purchase from last year – 42 per cent last year said they would sign a mortgage for the first time – it shows that there’s still confidence in the housing market from the most vulnerable segment. With the maximum amortization shortened from 30 to 25 years, home buyers are faced with the choice of waiting the sidelines and saving a larger down payment or purchasing a less expensive house.
Buyers Are Optimistic
The survey isn’t all doom and gloom. Of those taking a wait-and-see approach, almost six in 110 (58 per cent) believe mortgage rates will be the same or lower next year. This is good news for home buyers, who listed affordability (46 per cent) as the number one reason for not purchasing a home, followed by saving a larger down payment (32 per cent) and a lack of job security (28 per cent).
Don’t let these survey results get you down. With five-year fixed rates mortgages available for less than three per cent, there’s never been a better time to buy a home.