A Chunk of New Buyers “Disappears”: CMHC

Where did all the first-time buyers go? New data from CMHC suggests there are noticeably fewer of them out there (stats below).

Maybe they’re hibernating until they can save up a bigger down payment, amid home prices that (in many regions) remain near record highs. Or, perhaps fewer of them are able to pass the mortgage stress test given today’s high minimum qualifying rate (5.19%) and elevated non-mortgage debt levels.

Either way, here are some additional mortgage metrics to make you think, plucked from CMHC’s always-interesting 2019 Mortgage Consumer Survey… 

Mortgage Market Overview

• 47% of purchasers were first-time homebuyers in 2019
  • That’s a meaningful dip from 56% in 2018, says CMHC
    • Albeit, other surveys, like those of Mortgage Professionals Canada, suggest the 2018 figure was closer to 45%, so who do we believe?
    • From all the data we’ve ever seen, 56% seems high, especially for 2018, the first year of the onerous mortgage “stress test.”
  • Either way, Canada’s drop in mortgage rates and modest income gains apparently couldn’t offset our stubbornly high qualifying rate, resurgent home prices and the stress test’s impact
• 60% of buyers spent the maximum amount they could afford in 2019
  • That’s down from 78% in 2018.
  • We don’t have full confidence in the comparability of these two numbers, given CMHC changed how it asked the question this year (it added two more possible responses that could have steered people from answering “Yes” to its question of whether they bought the most home they could afford).
  • For first-time buyers, the number was higher. Two out of three (65%) spent the maximum they could afford on their home purchase. Last year the number was 85%!
  • This supposed drop in the ratio of buyers who are maxing themselves out requires further investigation because—apart from places like the Prairies and Newfoundland—homes aren’t getting any easier to buy.

Homebuying Process

• 31% of first-time buyers rented for 10+ years before buying a home
  • That’s up from 22% in 2018.
  • No surprise here. It takes longer than ever to save a down payment in the big city, so more Canadians are turning into serial renters. Indeed, unaffordability is slowly reducing the renting stigma.
• 44% of first-time buyers rented with family and friends before buying a home
  • An increase from 28% in 2018.
  • Parents’ basements across the country are getting crowded.
• 23% of first-time buyers were renting on their own before buying a home
  • A decrease from 39% in 2018.
  • Higher rents lead to more roommates.

Costs of Homeownership

• Roughly 1 in 2 homebuyers take at least four years to save up a down payment
  • Almost 10% take more than 10 years.
  • Most first-time buyers took 50% to 100% longer to save a down payment than repeat buyers.
• 33% of buyers made a down payment of less than 20%
  • An increase from 26% in 2018.
  • This increase is odd given that insured mortgage volumes fell in 2019 and given insurance is required for purchases with less than 20% down.
• On average, buyers were equally divided between three down payment categories:
  1. More than 20% down (these people get average mortgage rates, by and large).
  2. 20% down (these folks get the worst mortgage rates on average, after government policy changes killed some competition for 80% loan-to-value mortgages).
  3. Less than 20% down (these buyers get the best mortgage rates of all, as unintuitive as that may sound).
• 30% of the buyers who made a down payment of 20% or more claimed they did so to avoid paying mortgage default insurance
• 1 in 5 buyers spent more than $500,000 on their home purchase

Mortgage Stress Test

• 18% of buyers said the stress test impacted their home-buying decision this year
  • Last year the number was only 14% (so much for people adapting to the stress test).
• 61% of homebuyers who were affected by the stress test reacted by purchasing a smaller or less expensive home
  • Compared to 47% in 2018.
  • 300 square-foot condo, anyone?

The above data is extracted from CMHC survey, released November 15, 2019. The poll was based on the results from 1,385 first-time and repeat homebuyers who had undertaken a mortgage transaction in the past 18 months