Did you know 50% of homebuyers in Toronto are first-time buyers?

Toronto’s real estate market has been witnessing steady growth over the last few years as per reports both in terms of prices and property sales volumes. However, there have been some headwinds with unaffordability levels going up due to skyrocketing prices and subsequent cooling measures introduced by the authorities which often worked as entry barriers. Yet, Toronto is now increasingly being regarded as one of the biggest technology and business hubs globally and several leading companies and MNCs are setting up shop or expanding their operations here. This has led to huge demand for commercial real estate with almost negligible vacancies and has rubbed off positively on the residential realty sector as well.

Toronto is attracting skilled professionals in droves, many of whom are migrating here for better employment prospects. Naturally, housing demand is rising with supply levels still lower as compared to the same. As a result, price growth will continue in Toronto and other parts of the GTA as per many experts, albeit at a slower rate in 2019 and 2020. The market will be doing well over the next few years once buyers absorb the impact of new norms and increases in lending rates. In the meantime, TREB and other agencies have called on the authorities to review the stringent mortgage stress test and in case any easing up of measures takes place in the long term, it will only benefit the housing market further.

Impact of first-time buyers in the market

Did you know that a whopping 50% of homebuyers in Toronto are actually first-time homebuyers? This astonishing report indicates just how much first-time buyers have an impact to play in the real estate market and how this trend is going to gain traction going forward. First-time home buyers currently dominate the realty market and are actually seen to be driving growth in home prices across the city which have reached high levels at the moment. Real estate buyers in this bracket do not really have huge incomes but they aspire towards home ownership and are comparatively inexperienced in the market and younger. Over the last 5 years, as per several reports, four out of five buyers of real estate were lower than 50 years of age in Toronto. One out of every two buyers in the market was a first-time homebuyer in Toronto while 6 out of 10 buyers had incomes of the household lower than $100,000 annually.

Four out of 10 buyers had a high-ratio mortgage for buying their home, i.e. they had to pay less than 20% of the home value as the down payment. 1/3rd of the buyers in Toronto have also chosen variable rate mortgages. These are some of the most interesting findings by several industry experts and studies. Additionally one out of six buyers in Toronto have migrated to Canada after the year 2000 while one out of every six buyers purchase condominium units which have been newly developed. These are some of the dominant attributes of these first-time buyers that real estate developers would do well to look at. It also serves as an indicator of the changing demographic profile of buyers in the Toronto housing market in recent times.

First-time buyers, while accounting for a major portion of the buying public in Toronto, have also been paying for their homes in varied ways. A whopping 79% of buyers have drawn from their investments and non-RRSP savings for forking out the down payments for their homes. Around 36% of homebuyers have taken savings and investments from RRSPs while 49% of buyers have taken private loans and gifts from their family members and friends for making the down payment. 12% have drawn into their inheritances while 7% have taken lines of credit over the last few years. These are interesting trends indeed as revealed by several studies and reports. By removing the income from hard earned investments or selling the same and also by tapping into RRSPs, there is a lot of risk/wealth growing expectations being put into homes.

This indicates the aspirations and faith of the general buying public in real estate. Additionally, those borrowing money from family members and friends also tend to have lower equity in the asset purchased. Governments also need to reconsider programs for first timers in the housing market which are usually scaled up at the conclusion of each market cycle. The end of the cycle leads to more unemployment, distressed assets and other hurdles. First-time homebuyers can help reduce the strain by offsetting some losses incurred by distressed buyers. In case 50% of the market is dominated by first timers, then liquidity levels will be lower in Toronto’s realty market than previous expectations. This is one fact that industry watchers should definitely consider.

More about first time buyers

As per several reports, 85% of first time homebuyers have spent the highest that they could afford for buying their own homes. A major chunk of first time buyers have been putting a lot of faith on real estate from an investment perspective as seen earlier and they have been maximizing their home budgets for finally making that big purchase. As per reports, 76% of first time buyers remain confident about paying off their monthly mortgage amounts. Close to 60% of first time home buyers and 69% of repeat customers have also reportedly built up ample assets which can take care of any financial issues with mortgages. These include other real estate assets or investments.

The federal housing agency has reportedly stated that affordability of housing continues to be a major aspect for repeat and first time home buyers as compared to other variables such as the rise in interest rates and unforeseen expenditure. The Bank of Canada has already increased been scaling up its key interest rates and more hikes may be on the cards for 2019 as per reports. There has been the impact of the mortgage stress test and other measures like the foreign buyer taxes of 15% in Ontario. However, the overall forecast remains bright for the housing market in Canada and also in Toronto in spite of these obstacles. As per several reports, 80% of home buyers have faith in the long-term investment value of property and 66% also remain confident about the values of their homes going up over a time period of approximately one year.

All in all, a major market shift is seen where real estate continues to be a highly favoured asset class as far as first time home buyers are concerned and this trend will keep propelling the market in Toronto towards further growth in the near future.