With lower interest rates, and new mortgage rules in place, you’re likely noticing a surge in interest from first-time homebuyers, particularly among millennials and Gen Z. This demographic is eager to break into the real estate market, yet they often face significant hurdles when navigating the current real estate landscape. 

As Realtors, it’s our fiduciary duty to guide these buyers, and understanding their challenges and equipping them with strategic insights can make all the difference in helping them reach their homeownership dreams.

Assessing financial health

Encourage your clients to get a comprehensive understanding of their financial health early in the process. A debt-to-income ratio below 40 per cent is typically preferred by lenders and positions borrowers favourably for mortgage eligibility. Remind your clients that lenders will scrutinize this ratio when evaluating their capacity to manage monthly payments.

Additionally, familiarize your clients with the minimum down payment requirements outlined by the Canada Mortgage and Housing Corporation—5 per cent for homes priced under $500,000, with higher thresholds for more expensive properties.

Highlighting financial assistance programs for first-time buyers

• First-Time Home Buyer Incentive: Equip your clients with knowledge about this program, which allows the government to contribute 5 per cent or 10 per cent of the home purchase price through a shared equity mortgage. This assistance helps lower monthly mortgage payments and can significantly ease the financial burdens faced by first-time buyers.
  
• Land Transfer Tax Refund: Inform your clients about the possibility of receiving a refund of on their land transfer tax, reducing their upfront costs. In Ontario, first-time buyers can qualify for up to $4,000 back. Emphasizing this benefit helps them recognize potential savings during their home-buying journey.
  
• RRSP Home Buyers’ Plan: Encourage your clients to consider the HBP, which allows them to withdraw up to $35,000 from their RRSP tax-free for a qualifying home purchase. Guide them on how this can be a smart strategy for accessing necessary funds while continuing to think about long-term savings. It is also important to remind your clients that there are rules to returning the funds back.  

The value of mortgage pre-approval

Stress to your clients the importance of obtaining mortgage pre-approval as a critical first step. Teach them to compare rates, gather necessary documentation and engage with multiple lenders—be it banks, credit unions or mortgage brokers. Make sure they understand the nuances of fixed versus variable interest rates, associated fees and the benefits of rate holds.

Encouraging visualization of their dream home

Encourage your clients to visualize their dream home during your discussions. Discuss factors such as preferred locations, sizes, and layouts. Having a clear vision can streamline their home search and ensure their selections align with their needs.

The role of a knowledgeable Realtor

As their trusted advisor, your expertise is invaluable in navigating the complexities of the market. Emphasize the need for open communication regarding their preferences and goals, and be prepared to provide crucial insights based on their unique situations. Your ability to guide them effectively will not only alleviate uncertainties but also enhance their confidence throughout the buying process.

Preparing for competitive market conditions

In a highly competitive housing market, impart a strategic approach. Encourage your clients to explore a range of properties and trust their instincts. Keeping them educated about current market trends, inventory levels, and average selling prices will help them make informed decisions and present timely offers when they find what they’re looking for.

Budgeting for full homeownership costs

Make sure your clients understand that budgeting extends far beyond the down payment. Remind them of closing costs, ongoing expenses like property taxes and insurance and maintenance costs. By breaking down these elements and using online calculators and resources, you can help them prepare a budget that accounts for everything.

Selecting the right legal representation

When advising clients on legal representation, stress the importance of selecting experienced real estate lawyers. While cost is a consideration, remind them that hiring the cheapest option may end up being a costly mistake. A knowledgeable lawyer can navigate potential complexities, ensuring a smoother transaction; be prepared to recommend someone.

Building generational wealth through homeownership

Finally, underscore that homeownership is a critical step toward building generational wealth. With your expertise, you can empower first-time buyers to take calculated steps toward achieving financial stability and long-term success.

By equipping yourself with these insights, you’ll not only enhance your ability to serve first-time homebuyers but also position yourself as a trusted partner in their homeownership journey. Your role extends beyond a transaction; you are helping to lay the foundation for their financial future.

When it comes to housing policy, there are never easy answers, and there are always trade-offs that need to be balanced. When the federal government recently announced increasing amortizations to 30 years for first-time homebuyers along with increasing the cap on insured mortgages from $1-million to $1.5-million, it was the first loosening of mortgage regulations in over a decade. 

The policy was largely met with cheers from the real estate sector, where activity has slumped, while also garnering concerns about a counter-productive demand stimulus at a time when prices are high and debt burdens heavy. 

How affordability challenges have intensified

Beyond the cynical take that this shift in policy is simply outreach to young voters by a struggling incumbent party, it is worth examining why a change in policy is needed. The truth is that the pandemic radically exacerbated pre-existing affordability issues all across Canada as demand diffused into smaller markets. 

Without adequate supply to absorb that sudden flood of demand, prices skyrocketed. As a result, affordability, especially for young people, has only become more challenging. Prices are high, saving for a down payment is an ever-increasing hurdle and the multi-decade downtrend of mortgage rates has ended. 

B.C.’s unique struggle

In B.C., where affordability is particularly difficult for young people, housing frustration is at an all-time high.  This is best illustrated by the share of people aged 25 to 35 not living in what is known as a “minimum household unit”—that is, a situation where people live together but would rather live apart—is at a 40-year high. More than 40 per cent of that age cohort is living in a less-than-desired form of household. 

The announced changes to mortgage regulations will help that frustration in three ways:

Expanded amortization

First, allowing first-time homebuyers to qualify and structure payments at a 30-year amortization will help with monthly cash flows by lowering payments. This will also allow first-time homebuyers who were at the margin of qualifying under a 25-year amortization to enter the ownership market. 

Yes, these measures will mean paying more interest over the life of the mortgage, but as these families prosper and grow their incomes, they can make pre-payments or adjust their payments in ways to mitigate the added burden. What’s more, gains in home equity from even gradually rising home prices will offset some of the added cost. 

Higher insured mortgage limits for young families

Second, increasing the threshold for insured mortgages will help young families that have sufficient incomes but little savings to qualify for family-oriented housing in large cities, where finding an extra bedroom or two often means a million-dollar price tag. 

With the status quo, the move from $999,000 to $1-million meant a leap in the required down payment from about $75,000 to $200,000. As such, many families that would have liked to move up to more adequate housing were locked out from doing so, causing overall turnover in the housing market to decline. 

Increasing the threshold to $1.5-million will prevent the bunching up of demand that we observe under the current $1-million price threshold, taking pressure off prices by spreading demand across the price distribution. This should also free up more affordable housing and rental units as growing households move up the housing ladder–a process known as “vacancy chains.”

Incentivizing new construction with policy changes

Finally, Canada has a significant housing supply deficit and there is no scenario for improved affordability that does not require a record amount of new construction over the next decade. Allowing 30-year amortizations for buyers of new construction will help to induce demand for new units, facilitating a much-needed investment in new housing supply.

Can the market absorb a boost in demand?

As for the downside of these policies, there is always the risk with demand stimulus that prices are driven higher, particularly given that demand should also be given a boost by falling interest rates. However, initial conditions matter. These policies are coming into effect at a time when sales activity is running about 10 per cent below normal across Canada and closer to 20 per cent below normal in expensive markets like Vancouver and Toronto. Moreover, the total inventory of homes for sale has accumulated to healthier levels over the past two years, and governments are finally pursuing supply-side stimulus as well. 

Here in B.C., the government expects changes to zoning will boost new home construction by between 200,000 and 300,000 units beyond the status quo over the next decade. Consequently, markets should be able to absorb an uptick in demand without putting undue pressure on home prices.

Ultimately, we must weigh the benefit of better housing options for young Canadians facing the worst housing affordability in generations with the potential costs of stimulating demand or adding to debt burdens. It is a trade-off, but one that is well worth the cost. 

Following the Bank of Canada’s third consecutive cut to the overnight lending rate this year, reducing it by another 25 basis points in September to 4.25 per cent, Canada’s housing market should see an increase in activity this fall and continue into next year.

For consumers, the drop is a positive sign that we’ve moved past the peak of high lending rates, and with further rate cuts expected, many sidelined buyers will feel confident enough to re-enter the market amid more favourable borrowing conditions. But is it enough to make a material difference in the budgets of first-time buyers?

Several hurdles besides borrowing costs: Saving for down payment, passing stress test & finding the right property

High interest rates are just one of several financial hurdles that first-time buyers have to overcome. In addition to the high cost of borrowing, saving for a down payment — which is difficult to do when rental rates are high — plus passing the stress test to qualify for a mortgage and finding an appropriately-sized property in a desirable region within their price range pose a significant challenge. More supply — most importantly, the right type of supply — is needed to help young families achieve their goal of homeownership.  

While there are government initiatives targeted at helping people save and making lending practices more favourable for the next generation of buyers, such as allowing Canadian lenders to offer 30-year amortizations for insured mortgages of new construction homes, more needs to be done to incentivize development and make the construction of new homes easier, faster and more affordable for builders.

This is especially true in the country’s most expensive and densely-populated markets, where high construction and borrowing costs remain a major barrier for developers. Without further intervention from the government, new construction will continue to decline in the coming years. 

Increase in inventory required to make homeownership attainable

While home prices have remained stable in most markets this year and declining interest rates are making owning a home a bit more accessible to some buyers who have been waiting in the wings, we cannot afford to take the spotlight off the bigger issue: there are still too few homes for our growing population.

We’re approaching the intersection of declining interest rates and home price appreciation. If activity picks up in the months ahead, we’ll reach a point where the increased affordability offered by lower borrowing costs is outweighed by price gains due to increased competition.

According to a 2023 report by the Canada Mortgage and Housing Corporation (CMHC), Canada needs to build approximately 3.5 million additional housing units by 2030 in order to restore affordability. However, experts have refuted this figure, citing that with continued population growth, hundreds of thousands more homes will be required.

For first-time buyers, a difficult choice looms: whether to transact now or hold off until further rate reductions are announced.

As sidelined buyers gradually return to the market, an increase in demand could trigger a sudden uptick in competition, resulting in home price appreciation. Cautious buyers are likely to enter the market sooner than later — while competition is low and inventory is building — while those with a higher risk tolerance will opt to continue to wait for further rate decreases. The fact remains that young Canadians should not be forced to “time the market.”

Young Canadians prioritizing homeownership

Despite higher home prices and borrowing costs having been prohibitive to young Canadians looking to enter the market in recent years, there’s still a strong desire to own a home.

A recent Royal LePage survey found that 84 per cent of Canadians belonging to the adult Generation Z and young Millennial cohort — those aged 18 to 38 or born between 1986 and 2006 — believe that homeownership is a worthwhile investment, and they are committed to achieving this goal. For many, this means making significant lifestyle adjustments, whether it be cutting back on expenses or postponing major life milestones. 

Our country’s ongoing and worsening housing supply shortage needs to be addressed immediately

Young Canadians are not only cutting back on discretionary spending (travel and entertainment, for example) but also making financial decisions that could impact their long-term stability, such as delaying education or saving for retirement, as well as other significant investments.

If there was any doubt, this should serve as further proof to policymakers and regulators that our country’s ongoing and worsening housing supply shortage needs to be addressed immediately. While the dire need for more housing inventory grows ever more crucial, the financial stability and future opportunities of young Canadians are being impacted.

It’s quite clear that young Canadians are eager to transition from renting to owning their own home, securing their place on the property ladder as their parents did. While reduced interest rates can help make homeownership more attainable for first-time buyers, this is not the only solution to the larger, more complex challenges within Canada’s real estate economy. 

First-time buyers face more challenges than seasoned property owners. It’s about more than just the sticker shock of spending a tremendous amount of money; it’s also about navigating pre-purchase documents and understanding condominium living.

While affordability, a low-maintenance lifestyle, amenities and convenient locations make condominiums (or stratas) an excellent choice for first-time buyers, the rules, expenses and disputes can dampen the allure of multi-family living.

However, it doesn’t have to be stormy seas for first-time buyers. With proper guidance and patience, the industry can help these first-timers become long-term real estate investors.

How multifamily complexes work

For first-time buyers, stratas or condominiums are confusing words. Simply put, these interchangeable terms are just market-specific ways to describe a multi-family complex, most commonly in the form of an apartment or townhome.

Depending on where the home is located, the word for this multi-family home differs, as does how they’re regulated and governed. For example, in British Columbia, they’re referred to as strata corporations and are governed by the Strata Property Act, while in Ontario, they’re condominium corporations governed by the Condominium Act. Both Acts have specific intricacies but generally outline owners’ rights, the corporation’s responsibilities, dispute resolution and voting.

Diving deeper into the condominium world, the elected board or council, depending on the market, are the decision makers. This group of owners steers the direction of the complex on most issues. Annually, or when a significant need arises, the ownership gathers to vote on bigger issues. The board is also responsible for ensuring the rules are enforced fairly and helping resolve disputes.

This is a substantial amount of work for a group of volunteers, so a management company is often engaged to help ease the strain and provide professional assistance. Sarah Braim, a small business owner, explains that she joined her council to be involved in deciding how her money was being spent. “The monthly fees were not insignificant, and I wanted more say on how the money was spent.”

Reviewing financial documents, rules & bylaws and minutes: Crucial to the decision-making process

Speaking of financial obligations, no two condominiums are created the same. Monthly fees cover the basics across the board: operations and savings. That’s where the similarities end. What’s in the operating budgets can vary wildly depending on the style of the condominium. Newer and more complex communities can have additional costs for amenity features and staffing over and above the basic costs of insurance, maintenance and electricity. Ensuring there’s enough in the operating account to cover the building’s day-to-day expenses is essential.

The savings account is the rainy day fund that covers oversized ticket items like elevator replacements and re-roofing. Failure to appropriately fund either of these accounts results in special assessments or levies, which can cause some extra and sometimes unexpected strain on owners.

Any buyer has a lot to take in, but a new buyer won’t have the experience to navigate this information. Reviewing these critical documents, the rules and bylaws, and the minutes and financials are crucial in the decision-making process.

Tight timing between offer & subject removal means not knowing what to look for can be problematic

Once that perfect apartment has been found, the hard work begins. The window between submitting an offer and removing subjects is often tight, so not knowing what to look for can lead to problems.

Braim shares her experience: “In my first condominium, I wanted the ability to rent the property. I checked the bylaws and it was allowed, but what I didn’t know or understand at the time was that, even though rentals were allowed, there was a waiting list, and I’d be at the bottom.” Other buyers note they missed vital details, like special assessments, when reviewing condominium minutes, leaving them in legal trouble for unpaid assessments.

Jacqueline Adler, a real estate agent with Oakwyn Realty, shares, “Working with first-time buyers is much fun — sometimes more exciting for me than for them! It’s an incredible opportunity to share these moments in their lives.”

Adler notes that working with new buyers differs significantly from working with seasoned clients. She and her team take the time to walk purchasers through each step, explaining everything along the way. As for those hard-to-read documents? Her team carefully reviews them and prepares key highlights for clients. While buyers are still responsible for reading everything, these summaries highlight critical areas to focus on.

Purchasing a condominium for the first time should be an exciting milestone — and for most, it is — but it’s also a period of incredible stress. By offering patience and solid guidance, the industry can support these newbies through the overwhelming process and keep them from running to the hills (or ocean) far from real estate.

Home sales in the GTA dropped in June compared to the same month last year. Despite the Bank of Canada’s interest rate cut at the beginning of June, many potential buyers remained hesitant to enter the market. This resulted in a high supply that created a slight dip in the average selling price compared to the prior year. 

Source: TRREB

Fewer sales from a year ago but with over 12% more new listings

There were 6,213 home sales in June 2024, representing a 16.4 per cent decrease from the 7,429 sales recorded in June 2023. However, new listings increased by 12.3 per cent year-over-year, reaching 17,964. 

Source: TRREB

The average selling price in June 2024 was $1,162,167, down 1.6 per cent from $1,181,002 in June 2023. The MLS Home Price Index Composite benchmark decreased by 4.6 per cent compared to the previous year.

First half of 2024 performed better than all of 2023

Annual sales were $1,126,279 last year. After six months into 2024, we’re currently at an average of $1,130,744 which is slightly better than all of 2023. Sales have been steadily increasing since their fall in December 2023 which helped us achieve a slightly higher sales average. The current 6,213 June sales compared to December 2023’s 3,420 demonstrates the changing economy.

Source: TRREB

While the recent rate cut provided some relief, most homebuyers are likely waiting for multiple rate reductions before re-entering the market. This proves that the current well-supplied market has given recent home buyers more choice and negotiating power on prices. As sales increase alongside lower borrowing costs, the elevated inventory levels will help prevent a rapid increase in selling prices. 

As the market adjusts to changing economic conditions, any first-time buyers and sellers in the GTA will be closely watching for further interest rate cuts and their impact on housing affordability and the ever-changing consumer market.

Is Canadian real estate in recovery mode yet? Only time will tell, but this year is off to a decent start for those hoping that is the case.

Based on dollar volume (total value of all real estate sold), we just saw the third-strongest January on record. But, it’s still well behind the record-setting years of 2021 and 2022 — peaks we may never see again for many years:

Source: realist.ca, CREA

Recovery in sales but still under-average

The Canadian Real Estate Association (CREA) reports a recovery in home sales in early 2024, following a weaker second half of 2023. January saw a 3.7 per cent increase in sales, continuing from December’s 7.9 per cent rise.

Despite these gains, sales are still below the 10-year average by about 9 per cent. This is unsurprising as January sales are typically below the average, but they’re trending up pretty quickly toward it and could break the streak below the line this February.

Market growth from waiting first-time buyers

The market shows signs of tightening, with increases in competition among buyers being reported by professionals across the country. That being said, prices in rapidly recovering areas continue to trend lower based on CREA’s assessment, and this seems to be in line with what market anecdotes are telling us.

Much of the growth is coming from first-time buyers who were sidelined during the frenzied market of the last few years. It would stand to reason that we’re seeing an uptick in price in more affordable markets:

• Yukon: + 3 per cent
• Nova Scotia: + 4 per cent
• Alberta: + 5 per cent
• New Brunswick: + 5 per cent
• Prince Edward Island: + 6 per cent

Spring opportunities for sellers looking to upsize

However, prices are falling by 4 per cent in Ontario, and prices did not grow at all in British Columbia, where affordability is some of the worst in Canada.

Source: realist.ca, CREA

This could create a good opportunity in the spring market for sellers looking to upsize upon mortgage renewal for a few reasons:

1. The house they’re selling has clear excess demand from CMHC-insured first-time homebuyers.

2. Demand for larger products has been muted by interest rates, meaning there is often less competition in the higher price ranges.

3. They’ll be buying and selling in the same market, so their risk exposure to volatility or further upward or downward price movements is reduced by them selling to lock in prices. This means most upsizers feel they’re only risk-exposed to the difference in value between the asset they’re selling and the asset they’re buying.

4. If they’re facing a mortgage renewal, they’ll be absorbing the increased capital cost regardless of their existing mortgage, so their consumer psychology tells them they’re functionally only paying the increased capital cost on the difference mentioned above in value, as well.

This is generally how price-floor support and CMHC policy can push recovery through the market. As first-time home buyers purchase entry-level supply, existing owners sell and realize the excess demand in that market.

These non-owners are now faced with the decision between a rental market growing at record rates, per CMHC’s most recent report, or entering a volatile and scary housing market.

As we know from Bank of Canada statistics, close to half of all homebuyers are first-timers, which makes it clear why we’re seeing a volume resurrection in the lower end of the market.