When we brought BMO’s first-time home buyers survey to you last week, we asked you at the time if you thought it was realistic. The survey painted a picture of the average first time buyer in Canada: aged 29, looking for a $300,000 home, and coming to the deal with a $48,000 down payment. But those numbers, at least when it comes to the down payment, are unrealistically high, says one broker.
“I think they are whistling Dixie,” says Jerry Rose. “BMO’s numbers for what is an average down payment isn’t what I’m seeing.”
Instead he says, lower down payments are the norm, and BMO’s survey fails to include certain costs such as closing costs, and mortgage insurance – due to that small down payment that, with today’s rules and prices, is all buyers can afford.
“I’m seeing first-time homebuyers only be able to put down a 5 to 10 per cent,” says Rose. “I had one young man buying a home who can only put down 5 per cent on a $300,000 mortgage ($15,000,) but it will still be a struggle when you include the 1.5 per cent closing costs, and probably CMHC will back 50 per cent of the taxes. That is the reality for most first-time home buyers.”
He also pointed to the fact that the survey showcased one major flaw existing in the housing market today – the fact that Canadians are house crazy.
This, he says, is indicated in the fact that according to the survey, first-time buyers are regretful that they didn’t cash in on the market five years and buy something because now, prices are so high that they’ve simply been edged out of the market. But, he says, sometimes patience is a virtue.
“Buying a home is one of the most important financial decisions one can make. It’s crucial that those planning to enter the market are well prepared – not only to manage their costs, but also to pay off their mortgage as soon as possible,” he says.
“Determining what your mortgage payments and overall costs of home ownership will look like, and then living in that financial reality for a year before entering the market, can be an effective strategy.”
He also argues with BMO’s point that new rules on mortgage amortizations have not affected first-time buyers desire or ability to buy. First, Laura Parsons, mortgage expert at BMO stated when backing up this point from the survey,
“A shorter amortization is the most responsible approach to financing. It’s something BMO has been encouraging their customers to consider for years, as it means becoming debt-free sooner.”
However, Rose argues that with these shorter amortizations the government has made it unnecessarily hard for first-time buyers especially to enter the housing market.
“A lot of my job is counselling first-time buyers, telling them what they need to do to be in the position to buy a house six months or a year down the road,” he argues. “Owning a home is the best security young people can have – the government needs to make it easier for Canadians to do that.”
What do you think? Does BMO’s survey paint an accurate picture of today’s housing and mortgage market for first-time buyers? Or is it unrealistic and wishful thinking?