First-time homebuyers prepared for fluctuations in housing market, says panel of experts

Regulatory changes — such as shortening the maximum amortization period for insured mortgages to 25 years — have taken some affordability out of the housing market.

While qualifications for a mortgage have become slightly tighter, “the quality of the borrowers we’re seeing today is very strong,” said Stuart Levings, president and CEO of Genworth Canada, in a panel discussion during Homeownership Education Week in Toronto earlier this month.

“Overall there’s a tendency toward young professionals buying in a bigger city because that’s where they work,” he said. “They may have a higher debt ratio to begin with, but they have good earnings potential. They’re buying entry-level properties, they’ve got pretty good incomes, and as a result their debt ratios are very reasonable.

There is some concern in the industry that first-time homebuyers would be sideswiped by a rate increase. “Some will be, but most have a partner or resources to help them get through that,” said David MacDonald, group vice-president of financial services with Environics Research Group.

During the financial crisis of 2008/2009, lenders saw the desire to purchase drop off, said Erica Nielsen, vice-president of products and segments, home equity financing, with the Royal Bank of Canada. “In the last 12 to 18 months, we’ve seen the intent to purchase come back. (First-time homebuyers) need time to figure out how they can afford the homes they want, but they intend to purchase over the next 12 to 24 months.”

“As a lender we take a lot of time to stress-test our portfolio,” she said. And first-time homebuyers are considering accelerated or once-a-year lump-sum payments to absorb any interest rate increases that may occur.

Phil Soper, president and CEO of Royal LePage, says it’s a misconception that home prices are spiralling out of control in Canada. “Most of Canada is in the middle of a softening,” he said, adding that the numbers are skewed by Vancouver and parts of the Greater Toronto Area, where there have been severe supply constraints.

That’s why condos are an important part of the overall housing mix in downtown cores, said Mr. Soper. More expensive cities are seeing a higher proportion of condos being built — and “that’s a trend that won’t reverse itself.”

That’s resulting in two extremes: Builders are getting approval for condos that are a mere 250 square feet, but they’re also being mandated by municipalities to build three-bedroom condos in downtown cores (so homeowners don’t have to leave neighbourhoods when they have families).

This bodes well for millennials looking to become life-long homeowners — since they won’t sit on the sidelines indefinitely. “They’re very financially aware,” said Nielsen. “The general population isn’t nearly as prepared as these folks are.”

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