First-time home buyers making it work

With the new mortgage rules and home prices rising faster than ever in Kitchener-Waterloo and beyond, first-time home buyers are feeling the pinch. With the risk of being priced out of the market, there is the additional challenge of not only carrying a larger mortgage but also coming up with the minimum 5% deposit, or ideally 20% deposit that would exclude the need for CMHC mortgage insurance fees in most cases.

But recent studies show that rising prices won’t stop buyers who are determined to start building equity as soon as they are able. In fact, half of Canadians aged 18 to 34 own homes and rent out a room or basement to help cover housing costs.

first-time-buyers

While it may be an inconvenient to share your home, getting closer to being mortgage free, and having the extra income generation may be worth the temporary sacrifice. According to a study based on 2000 participants, 12 per cent of Canadian homeowners currently rent or plan to rent out part of their home, with that amount rising to 20 per cent for 18- to 34-year-old homeowners.

 

Move-Up and Luxury Home Buyers- Kitchener-Waterloo Real Estate Trends 2016

Kitchener-Waterloo was characterized by strong real estate market throughout 2016 with house prices increasing by an average of 10% over home prices in 2015. A series of broken sales records combined with low inventory has had a rippling effect on everyone.

Move-up buyers in particular have enjoyed the maximization of their equity. Owners who have sold their homes in 2016 are benefiting from the substantial activity at the lower end of the market, which has allowed them to move into larger, new homes, often in the luxury $1 million+ range. While there has been some multiple-offer activity in the luxury home market, competition is remarkably less than that found below $500,000.

Luxury Home

However, there are only a few weeks left in 2016 for buyers of luxury homes to enjoy the original land transfer rates. New mortgage policy has updated or “modernized” land transfer rates to reflect the prices of luxury homes, with purchases of homes over $2 million seeing a .5% rate increase to help accommodate the doubling of the First-Time Home Buyer land transfer rebate announced in November 2016.

“Modernized” Ontario Land Transfer Tax Rates
Home Purchase Price      
       Tax Rate
Up to $55,000                                 0.5%
$55,000 to $250,000                      1.0%
$250,000 to $400,000                    1.5%
$400,000 to $2-million                    2.0%
$2-million and over                         2.5%

 

New Mortgage Rules and You

Since 2008, we’ve seen the progression of changes implemented by the government to tighten eligibility rules for new insurable loans. By October 17th 2016, we’ll be looking at another wave of changes, most notably with the application of a “stress test”. Home buyers are now required to qualify for both their negotiated mortgage rate as well as the Bank of Canada’s five year rate. The result? Purchasing power will be affected and many home buyers will be adjusting their expectations and plans.

If you’re a first-time home buyer and you’re not sure that you can meet the new mortgage criteria, you should make it a priority to speak to your financial advisor or mortgage broker to advise you on your options.

Even if you you’re confident in your buying power because you already intended to buy well below your agreed pre-approval rate, you can benefit through the clarity of discussing these changes. If you’re a home buyer in this group, you may also see less competition, as the parties that have been working at the top end of the budget take a step back to regroup.

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Some new rules also apply to sellers: If you’re selling your principle residence, you will now need to report this change on your income taxes to the CRA, but your home will still be exempt from being taxed on this profit in most cases. This is a great topic to discuss with your accountant or income tax preparer.

As Sellers, you will find that our local market in Waterloo Region is healthy and attractive to home buyers, particularly those who are financially stable, and understand the advantages of reducing their debt ceiling. Further, our buyer base is growing geographically as we continue to attract out-of-towners who find the Region to be a great place to live.

Overall, while the new regulations will restrict purchasing power from what which we have previously been exposed, it’s important to understand that regardless of these changes, it’s always wise to reduce other consumer debt, save more for a larger down payment, or lower your budget for your new home, which increases your financial stability, and risk reduction.

After all, home ownership should be a smart, informed, and a financially comfortable decision that allows you to invest in your life.

If you’re looking for more guidance on buying or selling a home in Waterloo Region, reach out and we can help you get familiar with the process, whether it’s the first time or the fourth time. Contact Us.