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Affordability challenges drive first-time homebuyers to make concessions

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First-time homebuyers in Canada are increasingly concerned about their ability to afford the homes they desire due to financial constraints, according to a recent survey conducted by Environics Research on behalf of Sagen in collaboration with Royal LePage. 

The survey highlights the growing worry among prospective and recent first-time homebuyers regarding the sufficiency of their down payments, with a significant increase compared to previous years.


Insufficient down payments emerge as a concern


The survey revealed that 67 per cent of first-time homebuyers who purchased a property within the last two years expressed concerns about missing out on their desired homes due to an insufficient down payment. 

This represents a five-point increase from 2021 and a ten-point increase from 2019. Similarly, 63 per cent of first-time intenders, who plan to purchase their first home in the next two years, shared the same worry, indicating a three-point increase from 2021.

Royal LePage’s President and CEO, Phil Soper, acknowledged the challenges faced by Canadians entering the real estate market. He cited high-interest rates, strict mortgage qualification standards, and difficulties in saving for down payments within a reasonable timeframe as contributing factors. 

Soper adds, “That first transaction is the most difficult, and in today’s environment, first-time buyers are faced with large price tags, high carrying costs and the added challenge of qualifying for lending at higher rates due to the stress test.”

However, Soper noted that many first-time buyers still prioritize homeownership as a significant milestone and are leveraging accumulated household savings during pandemic lockdowns to boost their down payments.


Financial assistance trends: Gifts and loans


The survey also shed light on the financial support received by first-time homebuyers. Approximately 35 per cent of respondents nationwide stated that they received financial assistance in the form of a lump sum payment from their parents or relatives to contribute toward the purchase of their homes. 

Additionally, 25 per cent of first-time buyers received help with their monthly mortgage payments. Among those who received financial assistance, 46 per cent obtained it as a gift, while 37 per cent received support in the form of a loan.

Soper explained that the current market conditions, characterized by increased demand and rising home prices, make it challenging for first-time buyers to secure reasonable down payments. 

“Without equity to leverage, entering the housing market can be especially difficult, particularly in our major cities, where home prices are most often highest. Many first-time buyers have to rely on a financial boost, or at least a loan, from parents or family to help them buy their first property,” added Soper.  


Search for affordability leads to concessions


In response to tighter economic conditions, 34 per cent of first-time homebuyers across Canada reported purchasing homes in more affordable neighbourhoods or regions than originally planned. 

Additionally, 32 per cent opted for smaller homes, while 11 per cent had to seek financial assistance from family or friends. Soper noted that first-time buyers are willing to accept support and make concessions on their wish list to enter the market and start building equity.

Among first-time intenders, 31 per cent expressed intentions to purchase homes in more affordable areas, and 37 per cent planned to buy smaller homes than initially anticipated. Moreover, 16 per cent expected to require financial assistance from family and friends.


Average age of first-time buyers increases


The survey findings indicated a shift in the age composition of first-time homebuyers. In 2023, 24 per cent of first-time buyers were under the age of 30, 33 per cent were aged 30 to 34, and 43 per cent were aged 35 or older. 

Comparatively, the 2021 survey showed that 29 per cent were under 30, 38 per cent were aged 30 to 34, and 33 per cent were aged 35 or older. 

“The fact that first-time buyers are entering the market older than they were just a few years ago is more directly linked to the increased cost of borrowing and the unprecedented home price appreciation we saw during the pandemic real estate boom,” said Soper. 

Soper highlighted the need for government intervention to address the critical issue of increasing housing supply promptly, emphasizing the importance of accommodating future generations of homeowners in the country.


Strong desire for homeownership remains


Despite the challenges faced by first-time homebuyers, the survey emphasized the enduring importance of homeownership, particularly among younger Canadians. Royal LePage’s 2023 Real Estate Investors Report revealed that individuals aged 18 to 34 are more likely to own multiple investment properties compared to those aged 35 and older. 

Furthermore, this younger cohort demonstrated a higher likelihood of owning an investment property without owning their primary residence, indicating the strong aspiration to build equity through real estate ownership.

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