Price and affordability top of mind for potential homebuyers

The old real estate adage tells people that the three most important things to look for in a home are “location, location, location.” 

But for the majority of Canadians who bought a home over the past year, the most important factors affecting their decision were price and affordability, according to a new report by Canada Mortgage and Housing Corporation.

The annual Mortgage Consumer Survey found that the number of buyers spending the maximum amount they could afford on their home fell to 60 per cent in 2019, a significant drop from 78 per cent in 2018. The number of first-time homebuyers who had rented housing with family and friends before making their home purchase increased from 28 per cent in 2018 to 44 per cent in 2019.

“The mortgage consumer survey’s goal is to help put Canadians and the mortgage professionals who serve them in the best position to succeed when shopping for a mortgage,” said Sam Carnavole, CMHC’s Director of Client Relationship Management. “This year’s survey includes important takeaways on affordability and the first-time buyer’s journey from renting a home to owning one. We hope the survey helps Canadians get the most of what can be an overwhelming process.”

The CMHC report said one of the biggest stories of 2019 was the dramatic decrease in the number of homebuyers who chose to spend the maximum amount they could afford on their home. This suggests that many Canadians may be shying away from the “house-rich, cash-poor” approach of past years, it said.

In 2018, 78 per cent of homebuyers – more than three out of every four buyers – bought the highest-priced home they could afford. In 2019, that number fell to just 60 per cent. Only 18 per cent of Canadians who bought a home last year spent less than they could have afforded. Nearly one third of buyers spent $300,000 to $499,000 on their home purchase in 2019. Only around one in five buyers spent more than $500,000, said the CMHC.

“On average, buyers were equally divided between the three down payment categories: more than 20 per cent, 20 per cent and less than 20 per cent. Half of the buyers who put down less than 20 per cent cited a lack of funds as the main reason (53 per cent). This was followed by a desire to keep some of their funds for other expenses (27 per cent) and wanting to be comfortable at their current debt level (14 per cent). One third of the buyers (30 per cent) who put down 20 per cent or more said they did so to avoid paying mortgage loan insurance. Others wanted to reduce the amount of interest they had to pay (28 per cent) and pay down their mortgage as soon as possible (26 per cent),” said the survey.

The report said that about one in five buyers took less than two years to save for their down payment.

Here were some of the other key findings from the CMHC survey:

  • 59 per cent of homebuyers surveyed were aware of the new mortgage stress test rules. 76 per cent said the changes had little or no impact on their decision to buy a home;
  • 65 per cent believe the new mortgage qualification stress test will prevent more Canadians from taking on a mortgage they can’t afford;
  • Top homebuyers “must haves” were either price or affordability (80 per cent), number of rooms (73 per cent) or proximity to public transit (67 per cent);
  • 60 per cent of homebuyers bought the highest-priced home they could afford, falling significantly from the 78 per cent who spent their maximum in 2018;
  • 23 per cent of homebuyers in 2019 said their current level of debt is higher than they were expecting. This number is up from 19 per cent of buyers in 2018;
  • 59 per cent reduced their non-essential expenditures since owning a home. The most common areas where they chose to cut back was on entertainment (66 per cent), vacations (55 per cent) and food (44 per cent); and 
  • 87 per cent were confident in the long-term financial prospects of homeownership, and their future ability to make their mortgage payments.

The survey also found that many of the homeowners had some uncertainty about the homebuying process with 47 per cent saying the main causes of concern were: unforeseen housing costs, living with home expenditures, and paying too much for a home.

“In all, 42 per cent of 2019 buyers said they felt concerned or were uncertain about the process of buying a home. This is a noticeable jump over the 37 per cent of buyers who said the same in 2018,” said the CMHC.

“Perhaps because of this uncertainty, 78 per cent of buyers interacted with a real estate agent to help guide them through the process. That’s a significant increase over the 61 per cent of buyers who used an agent in 2018. There was a strong increase in buyers’ perceptions of the value of working with a real estate agent. The percentage of homebuyers who recognized the value of using an agent rose from 28 per cent in 2018 to 35 per cent this year. Some of the key reasons buyers highlighted for this trend were an appreciation for the advice they received from their agent and their agent’s attentiveness to their specific needs.”