It’s that time of year again where I throw my 2 cents worth into the mix for First Time Home Buyers predictions for the year. The last 2 years have been on the mark with predictions for the most part but this year proves to be an interesting animal.
Here are my predictions for 2017:
1) Scaling Back
With the mortgage rule changes taking effect in the fall of 2016, some first time home buyers are already feeling the squeeze of these rule changes. Many are making tough decisions about other debts they carry including credit cards, car loans and credit lines. First time home buyers have expectations on what they want to buy but when they find out how much they can afford, they are forced to make some difficult decisions in some cases. 2017 will be the year of loan renegotiation with car dealers and banks to lower payments for some in this category. I have had some clients go back to their loan provider to see if they will work with them to provide a strategy that will assist them in home ownership.
2) Realtors will play a more active role in Pre Approval
The recent mortgage rule changes have made the complexity of an approval a more daunting task depending on the amount of the down payment (you have a down payment right?). The situation of a first time home buyer going into a bank branch and giving their income and down payment amounts to the bank officer and coming out with a pre approval in 10 minutes is just criminal and realtors are realizing this. It is no longer the question of “are you pre approved?” but did they obtain your credit history and score, actually verify your income through pay stubs and employment letters, verify the source of your down payment, and did they discuss strategies for qualification. Yes, strategies are important, this is not the same qualification process your parents went through. Good realtors understand they are not in the taxi and limo business chauffeuring first time buyers around. They instead may be asking a lot more questions to ensure the would be buyers are really pre approved and understand the process.
3) Refer to #1, then think Purchase with Improvements
The #1 path to affordability for some First Time Home Buyers will be to buy less home. The kitchen may be ugly, it may need new windows to stop the draft from putting the candle out on the kitchen table during those romantic dinners, the floors may be worn to the point they show the previous flooring choices or maybe the bathroom needs a face lift from the outhouse wallpaper plastering the walls. The state of the housing supply in Winnipeg will force buyers to look at homes that need a little TLC. The purchase plus improvements program will allow buyers to purchase a lower priced home and improve it to their liking. The home flippers and renovators may not like my comments on this because now the buyers may be looking at properties usually purchased by “flippers”. Speaking of flippers, the new mortgage rules affected them as well, adding additional costs to higher interest rates, those that are financially strong will continue to do well, but the truth is that these additional interest costs in addition to the costs for repairing and renovating for these flippers will increase the cost of the homes putting them further out of reach of the buyers that are looking for a home that is fully renovated.
4) Condos for Rent
With the glut of condos available in the Winnipeg market, investors may be snapping up some of these units to rent out. With the new qualification rules making ownership out of reach for about 10-20% of the market, renting a condo may be an alternative they would consider. It is also my recommendation for first time home buyers to look at renting a condo before buying one. The Condo Act in Manitoba changed the landscape for condo ownership and condo purchases should be viewed as a longer term decision. If you are a first time home buyer looking to purchase a condo, consider your situation 5 years from now. If condo life is no longer suitable due to a growing family or whatever reasons, you may not get the money out of your condo that you put into it. Financially this could be a very challenging situation, one that could be avoided if you had rented a condo.
There is no doubt that the impact of the recent mortgage rule changes will be felt by some First Time Home Buyers. A recent article suggested that the housing market accounts for 12% of the Gross Domestic Product in Canada. This amounts to billions of dollars across many related industries, not just real estate and mortgages.
Stay tuned for what should be an interesting year.
-Daryl Harris, AMP is a First Time Home Buyer Specialist in the Winnipeg market providing advice and strategies to this segment of the market for over 10 years.