First-time home buyers want more for less

First-time Canadian home buyers have lofty expectations, a new survey by TD Canada Trust has found.

The majority of new and upcoming homebuyers who participated in the bank’s Home Buyers’ Report said they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. On average, six-in-ten first-timers want a detached home and three-quarters want a brand new home.

Today’s first-time buyer tends to lean towards the bells and whistles, said Christine Martysiewicz, spokesperson for RE/MAX Ontario-Atlantic Canada Inc.

The tradeoff is that they are in it for the long haul, she said. In Quebec for instance, the majority of first-time buyers stay in their homes for more than a decade, TD found.

“They want the granite, they want the stainless steel appliances, they’d like that extra bedroom because they don’t want to move and move like first-time homebuyers did over the last few decades,” Martysiewicz said.

“They’re a young, vibrant demographic and they would like it all now.” They’ve also been driving the market for quite some time, she added.

TD found that most rookie buyers plans to take out a mortgage and only 30% plan to dish out more than a 20% down payment. The rest will need their mortgage insured by the Canadian Mortgage and Housing Corporation — a quasi-government agency.

"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, regional sales manager for mobile mortgage specialists at TD Canada Trust.

The study found 60% of buyers are worried about being able to afford payments if interest rates rise. Economists at TD expect average house prices to jump 9% this year over last to just shy of $350,000 before dropping back slightly in 2011. The Bank of Canada hiked its rate by 50 basis points in June for the first time in three years.

“I advise first-time homeowners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end.”

But don’t mistake ambition for naiveté. Home buyers have done their homework coming out the gate and well before they start a relationship with a realtor, Martysiewicz said. TD found that buyers in the hottest markets do anywhere between eight and 10 months of shopping.

Roughly 94% of respondents said they studied their mortgage options with 91% getting pre-approved. Another 88% calculated total closing costs and 85% considered utility fees. Land transfer tax and legal fees were among the top issues homebuyers felt least prepared for.

More than any other region, Atlantic Canadians have their hearts set on new, large homes with 83% of them keen on a fully detached home versus 58% nationally.

Ontarians are bidding for homes below the asking price with cash-in-hand. Roughly 36% of first-time homebuyers in the province aim to put more than 20% down compared to 30% nationally. Albertans also drive a hard bargain with more than 70% expecting to pay less than asking price going into a deal.

More respondents in Manitoba and Saskatchewan are expecting to pay market price or more for the features they're looking for.

Consumers were split down the middle in terms of type of home versus neighbourhood. Martysiewicz said real estate will always be about striking a balance between location and affordability.