Home-ownership affodability issue

Saturday, September 24th, 2005

Peter Simpson

For many years, the ability of young people to afford to buy their first home in the Lower Mainland has been a concern in the building industries. The findings from the Greater Vancouver Home Builders’ Association’s annual survey of first-time home-buyers suggests our concerns won’t go away any time soon.

Young families across Canada are having a more difficult time than previous-generation young families making ends meet, a study by the Vanier Institute of the Family reported last year.

The largest declines in net worth are in the under-25 and 25-34 age groups — prime first-time home buyers. The declining net worth in these groups is a reflection of lower homeownership rates (ie. fewer families with home equity); and a diminished ability, due to sluggish employment earnings, to provide a down payment for a home.

Factor in ever-increasing fees, levies, charges and taxes imposed by all levels of government, and it adds up to a difficult time for our young people. Thank goodness for low interest rates.

More than 800 people attended our 12th annual seminar last spring, generating 326 completed survey-forms. (Many couples answered the survey questions on one form only.) Canada Mortgage and Housing Corp. tabulated the results at its research centre in Ottawa.

According to the survey answers, most potential first-time home buyers in the Lower Mainland are:

– 25 to 34 years old.

– Currently renting outside the natal home.

– Planning to purchase a home with a spouse or partner within one year.

All three statistics mirror answers from last year’s survey. Many others, however, were quite different. Complete survey findings follow, plus some of my observations

– 72 per cent of respondents indicated they simply could not find the home they wanted at a price they could afford. Thirty-nine per cent said they did not have enough money for a down payment.

Hate to start off on a gloomy note, but these concerns placed one-two last year, and the year before that, and, well, you get the picture. What’s particularly worrisome is the affordability issue is up eight per cent from last year and the down-payment concern is up 10 per cent. Sounds like an echo from the Vanier Institute for the Family study chronicled a few paragraphs earlier.

– 66 per cent of respondents currently rent accommodation, while 22 per cent live with their parents.

Both are consistent with last year’s responses. Today’s low mortgage rates trump rent cheques. Perhaps mom and dad can help with the down payment. Hey, get the kid out of the house and convert the bedroom into a den. Just remember the boomerang factor — what moves out, might come back.

– 64 per cent will be purchasing their first home with a spouse or partner. Twenty-nine per cent will be home alone. Five per cent indicated they would be buying with a family member.

Again, consistent with last year’s responses. People are pooling resources and sharing the expenses and experiences of homeownership. Friends rent together, so why not buy together?

– 32 per cent said they will buy within six months, while 39 per cent indicated they will take the plunge within one year. Eighteen per cent said two to three years, up eight per cent from last year.

The sense of urgency was slightly less of a concern for respondents this year, despite rising real estate prices. They want to climb on the equity ladder soon. However, they seemed confident interest rates will remain low for some time and they are taking a little of that time to be sure.

– 34 per cent said they plan to buy a detached home; 26 per cent, a townhome; 19 per cent, a lowrise condominium; and 16 per cent, a highrise condo. The rest were undecided.

Goodness, this was a strange one. Last year, only 14 per cent indicated a detached home. High prices are a concern with respondents, so I don’t know if this is a case of wishful thinking or they intend to buy a home in the outlying areas. I will check into this response to make sure the stats are correct.

– Six per cent said the maximum price they would pay for their first home is less than $150,000; 13 per cent said $150,000-$199,000; 19 per cent, $200,000-$249,000; 21 per cent, $250,000-$299,000; 21 per cent, $300,000-$349,000; and 18 per cent, more than $350,000.

This is one for the record books. Sixty per cent of respondents expect to pay $250,000 or more for their first home. Last year only 33 per cent said their maximum price would be more than $250,000. This reflects a realization that high real estate prices are here to stay in Lotusland-by-the-Sea.

According to CMHC research, 93 per cent of all new single-family homes in the Lower Mainland are priced at $350,000 and higher — tops in the country. That statistic provides little comfort to first-time buyers.

– 25 per cent of respondents indicated their down payments will be five per cent or less, and 28 per cent said 10 per cent, nine per cent said they have 15 per cent down, 12 per cent said 20 per cent down, and 22 per cent of the respondents plan on having a down payment of more than 25 per cent.

Again, not many young people have healthy cash reserves to use as down payments, with less than one-quarter of the respondents above the 25 per cent threshold.

– 52 per cent of respondents said they will use RRSPs as part of their down payment, with 39 per cent of that group intending to use $20,000.

This shows a high level of financial responsibility. The withdrawal of $20,000 in RRSPs per person can be repaid as a lump sum (wishful thinking) or instalments over 15 years.

– 27 per cent of respondents indicated they could make do with a home sized under 1,000 sq. ft., while 34 per cent preferred 1,000-1,500 sq. ft. 20 per cent said 1,500-2,000 sq. ft. and 15 per cent wanted a home with more than 2,000 sq. ft. of living space.

Reasonable expectations from the majority of first-time home buyers. Today’s new homes are well designed and in many cases feel much larger than they are. Kudos to the architects and designers.

– 13 per cent indicated they only wanted one bedroom, 47 per cent said two bedrooms, 31 per cent said three bedrooms, and seven per cent said four bedrooms.

Again, reasonable expectations that basically mirror last year’s responses, although the group preferring two bedrooms was seven per cent higher than last year’s 40 per cent. Also, it appears one of the bedrooms will be used as an office or computer location.

– 73 per cent of respondents use the Internet to obtain information on how to buy a new home. (More than one answer was chosen by some respondents.) The print media was second at 40 per cent and a realtor was third at 34 per cent.

This comes as no surprise. We are, after all, talking to a largely techno-savvy group which intends to use the internet extensively, including obtaining information on new housing developments and mortgage-banking options.

– Information deemed to be most helpful to the respondents included mortgage financing (73 per cent), how to inspect a home (68 per cent), housing market details (67 per cent), home warranty (47 per cent), builders (44 per cent), and new housing developments (38 per cent).

It is incumbent on everyone involved in the industry to help satisfy this thirst for knowledge by educating and informing. Buying a first home can be intimidating and confusing. Providing reliable information to potential home buyers is key to demystifying the experience.

– Regarding location preference, respondents were literally all over the map. The good news is that builders and realtors across this region offer a broad range of housing types, both new and resale.

– 67 per cent of respondents indicated they chose a realtor through referrals from family or friends. Nine per cent said Internet research, six per cent said they chose a realtor they had contacted previously, five per cent said they were attracted to a realtor’s advertising presence and three per cent said they wanted to deal with a well-known real estate company.

– A whopping 98 per cent of respondents said it is important that their new home is protected by home warranty insurance. Last year this number was 93 per cent.

I have a difficult time understanding why the number is not 100 per cent. A home is arguably the largest purchase these folks will make. It is crucial their significant investment is fully protected.

– Features most desirable to respondents include, in order of importance, energy efficiency, healthy indoor air quality, secondary suites, flexibility-adaptability, home office and finished basement.

Today’s first-time home buyers belong to the Blue Box Generation. They were weaned on conservation measures, and they want healthy home design and construction. Also, secondary suites have come out of the closet. Municipalities should come to grips with this issue. Here’s a sign of the times: One respondent said he would like acreage — a minimum 5,000 sq. ft. lot. I was torn between laughing and crying.

– 78 per cent of respondents said they would be very likely or somewhat likely to purchase an energy-efficient home knowing that they could be eligible for a 10-per-cent refund on a mortgage loan insurance premium from CMHC.

– 10 per cent of respondents were aged 18-24, 49 per cent were 25-34, 21 per cent were 35-44, 14 per cent were 45-54, and three per cent were 55 and older.

As was the case last year, half the respondents were in that marketing dream category — 25-34.

– Finally, 95 per cent of respondents said the Greater Vancouver Home Builders’ Association is a credible organization, and 96 per cent gave the seminar an excellent or very good rating. That’s a ringing endorsement by any standards.

In a month or so I intend to contact some couples who attended our seminar five years ago. It will be interesting to learn how their lives have evolved since 2000.

– – –

In last week’s Westcoast Homes, columnist Bob Ransford wrote ” ‘pickup truck builders’ who may build two or three single-family homes a year and are nowhere to be found after you have moved into your new home … they represent what the rest of the industry regards as the ‘black market’ building activity that gives everyone a bad name.”

Two award-winning custom builders (and drivers of big pickup trucks), Gary Friend and Harald Koehn, both expressed frustration, to me, with always being lumped in with the bad boys. They have a point.

Many builders who build two or three homes a year do, indeed, drive pickup trucks. They have to if they want to function properly. These hard-working folks, some in business for more than 25 years, stand proudly behind every home they build and are every bit as professional and knowledgeable as the experienced, large-volume builders.

And, by the way, there were a few large-volume builders who breezed into town years ago, built some multi-unit condominium buildings then disappeared, never to be seen again.

I am sure that Homeowner Protection Office CEO Ken Cameron will join me in confirming that new homes built today are covered by one of the strongest warranty programs in the world.

Meanwhile, we at the home builders’ association support the actions of the Homeowner Protection Office, particularly its efforts to ensure new-home buyers are well served by the homebuilding and home-warranty industries in B.C.

Peter Simpson is chief executive officer of the Greater Vancouver Home Builders’ Association.

© The Vancouver Sun 2005

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