According to Benjamin Disraeli, there are three kinds of lies: lies, damned lies, and statistics. But according to a new Harris-Decima Poll, 68% of Canadians already own a home; an astonishing 33 per cent is considering buying one in the next three to four years.
If accurate, this suggests that Canadians place an enormous amount of faith in real estate as an investment despite the indreasingly dire predictions of a correction or even a bubble because of high household debt.
Interestingly, 57% of purchasers in the five major markets canvassed were over 44 years of age. Those over 65 were in the majority when it came to condo purchases. To me, that means that not all boomers can afford to retire, but they are nonetheless down-sizing as they age.
I’d expect to see those percentages increase pretty dramatically in the next few years as more and more boomers cross the retirement threshold.
CMHC reports that 43% of the buyers ten major markets in 2009 were first time buyers. I’d guess they jumped into the market back then because of low interest rates. Some of that enthusiasm has waned with the new mortgage rules which make it harder for first time buyers to get loans, and impose longer amortization periods. That drives up monthly costs.
Mark Carney, the Governor of the Bank of Canada, is now forecasting an increase in rates sometime in 2013 as growth picks up in Canada which may further depress demand. (And yes, we’ve heard that before, but we can’t get lulled into thinking that low interest rates are here to stay. At some point, the US/world/Canadian economies will recover, and when they do, those rates will soar.)
When that happens, will the home-buying stats hold true for first time buyers?
I don’t know for sure, but I think so, at least when it comes to intent When I purchased my first home, I was tired of renting, tired of noisy neighbours, and tired of paying someone else’s mortgage. I paid 11.25% interest on my first mortgage, which now seems shocking, but which wasn’t prohibitive at the time.
When I’m working with first time buyers, I often suggest they pretend their interest rate on their financing is already 2-3 per cent higher than it is right now and park the difference in a Tax-Free Savings Account. That way, the extra money will be there when it comes time to renew their mortgage. Any interest earned in that account is tax-free so it’s a nice little investment. If if they don’t need it for monthly payments when the time comes, they can withdraw the money to pay down their mortgage and build up their equity.
But pretty much all the first time buyers I’ve worked with has been cautious and well-prepared for an increase in interest rates down the road.
All in all, the statistics suggest that Canadians like the idea of home ownership far more than renting. I think those first time buyers who can’t get in to the market now will save more for a down payment and find a way to buy a home later on.
After all there are certain milestones that govern our lives: getting married, having children, and retiring are probably the main ones when it comes to home ownership. These life events are going to take place whether the economy slows down or picks up and regardless of what happens to interest rates. And unlike other investments, buying a home is almost always an emotional decision rather than a purely economic one.
Given the demographics (an aging population with children now entering the workforce) — who knows? Maybe these statistics will turn out to be true.
Update: A comment posted on Facebook to this blog post says the stats are astonishing because they’re wrong. Paul writes:
“Sloppy reporting in the article you link to. He misattributes Harris/ Decima as saying ‘More than two-thirds of Canadians own their home (68.4%).’ But they are talking about households, not Canadians –which is quite different. Italy is among the highest when it comes to households owning their homes, but 70% of adult children live at home. In Canada I think it’s about 50%, and when you pile on elderly parents moving in with their kids the picture is very different. The interesting realtor story should be the changing Canadian household, not home ownership rates (which were already at 67% in 2002, so it has barely moved in a decade). End of rant :).”