Buyers Taking a More Rational Approach To Their Mortgages
Lenders are still pulling out all the stops in anticipation of the year’s peak mortgage season – and our April Mortgage Rate Outlook panel’s recent consensus finds these record low fixed and variable rates won’t be going anywhere any time soon. As we explored last week, home sales continue to decline in all major markets, including the GTA and Vancouver, even with record low mortgage rates.
Why are home buyers shying away from the market? The results of two recent surveys give us additional insight to softening sales nationwide.
First Time Buyers Are Saving For Longer
A recent Genworth Canada Homeownership Study has found that first time buyers are indeed putting off their home purchases due to last summer’s affordability reducing CMHC rule changes – and they’ve shifted their focus to growing their down payments.
The survey, which asked respondents on their general feelings of financial well-being and preparedness, found that there’s been a large increase of buyers planning to pay more than 20 per cent down on their mortgages – 56 per cent compared to 36 per cent last year!
“Canadians entering the real estate market are making financially astute choices by saving longer and putting down larger deposits on their homes,” according to Brian Hurley, Genworth’s CEO. “They continue to value homeownership and are being responsible about the way they enter into mortgage debt. This trend bodes well for a soft-landing of the housing market.”
It was found that the proportion of buyers who save for less than two years for their homes dropped by a full 20 per cent – and that those who plan to save for over five years increased by more than 50 per cent.
Buyers Expect Mortgage Debt to Stick Around – And Other Debt to Pile On
Another poll, conducted by CIBC this week, has also found that Canadian home buyers expect to be paying for their mortgage until the age of 57, up from 55 in 2012. Not surprisingly, British Columbia leads with the longest pay-off timeline at 59 years.
While Canadians look to be heeding the government’s warnings to stem household debt levels when it comes to their mortgages, other types of high interest debt are still a national issue. CIBC’s findings point to a troubling trend of increasing credit card and line of credit debt, and a decrease in prepayments made on mortgages, such as lump sums. Only 11 per cent of owners made an extra payment on their mortgages last year, citing lack of available funds as the main culprit. As we’ve found that making annual lump sum payments of $1000 over the course of 20 years can save a homeowner $10,747 in mortgage interest, it’s unfortunate that debt overload may be costing these owners thousands in the long run.
Leaving some breathing room for other financial commitments can make a big difference in the payoff of your mortgage. We’ve got a handy tool that helps calculate your maximum mortgage affordability based on other debt needs – a great starting point for buyers creating their budgets.
Waiting Out An Uncertain Market
While the cost of borrowing remains historically inexpensive, other economic factors may be dissuading buyers from entering the market.
Recent job cuts in March and an increased unemployment rate certainly make for an uneasy economic climate, and may be influencing buyers to hold out until conditions stabilize. As well, the Bank of Canada is holding tight to national interest rates as economic unrest remains prevalent in Europe and the U.S. As our Mortgage Outlook Panel points out, the BoC won’t be raising Prime rates any time soon – not in the upcoming announcement on April 17th, and likely not until early 2014. This may be contributing to a lack of urgency felt by buyers, as they feel our record low rates will stick around for some time – and the positive trend seems to be that they’re willing to wait until such a purchase will be more manageable for their finances.
Week in Review
It’s been another week with no mortgage rate changes, with all one-year, five-year and 10-year fixed mortgage rates staying the same, along with the five-year variable rate. We’ll just have to take the wait-and-see-approach to see if lenders roll out any record breakers over the coming weeks.