New entrants to the market could be getting cold feet in volatile environment, according to broker
While the Greater Toronto Area (GTA) mortgage market is remaining resilient in the face of economic uncertainty and rate increases, one buyer cohort that’s feeling the strain is first-time homebuyers, according to a prominent broker.
Dwight Trafford (pictured), principal broker at Rock Capital Mortgage in Orangeville, told Canadian Mortgage Professional that elevated borrowing costs over the past year had squeezed the budgets of many new buyers and seen plenty return to the sidelines in the region.
That’s transpired as sales continued to tick upwards in the region, rising by 7.8% on a yearly basis to 5,250 in July, with average home prices also seeing a sizeable jump of 4.2% – meaning the benchmark price of a home is now nearly $1.12 million across the entire area.
“I think in general, first-time buyers, young couples, might be sitting back a little bit,” Trafford said. “I just don’t see a lot of that. I still see the other buyers and people that have to move – they don’t change their mind because of interest rates or because of uncertainty in the market.
“If they’ve outgrown the house, they’re going to buy and sell. If they’ve been waiting for a house to come on the market that’s now on the market, they’re going to buy and sell. People that need to, want to, and can, do. Now people that are [already] sitting on the fence, I think possibly are waiting.”
RBC Economics study shows Canadian spending slowing due to debt pressures. While spending is steady, early signs of weakness coincide with a slight unemployment rate increase.https://t.co/r5amlMW8vO#mortgagenws #mortgageindustry #householddebt #economy
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Why are first-time homebuyers holding fire on entering the housing market?
A significant reason for the caution of prospective new buyers in the current market, Trafford said, is the fact that the landscape has been so rocky in recent times, with home prices plummeting in 2022 before staging a recent revival.
With little clarity over where which direction market is headed – and whether activity and prices will take a further hit if the Bank of Canada continues to raise rates – many would-be buyers appear to be taking a cautious approach.
“If you’re talking about a [segment] that has maybe stalled a little, it would be those first-time buyers that are just kind of maybe sitting and waiting and hoping that they don’t buy at the wrong time [if] they buy today and then the house drops $50,000,” he said. “So they just want to be there being more cautious.”
Still, other buyer types are more than making up for the inactivity of new entrants – and the new-to-Canada segment has proven particularly robust, especially in Toronto, according to Trafford.
According to Statistics Canada, Toronto stands out as the most popular location for recent immigrants to settle, with the city welcoming 29.5% of newcomers to the country in 2021, compared with 12.2% for Montreal and 11.7% for Vancouver.
Overall, more than nine in 10 of recent immigrants lived in one of the country’s 41 census metropolitan areas, StatCan said.
Alternative and non-bank lending continue to gather pace
The challenges of the current market, which are seeing conventional lenders adopt stricter criteria while interest rates continue to spike, mean an ever-growing number of borrowers are turning towards the alternative space, Trafford added.
“[The B space] is a much bigger piece of the mortgage brokerage business model than ever before, for sure,” he said. “That’s for a lot of reasons – self-employed deals, there’s just no program really for self-employed people on the A side.
“There are a lot more people with softer credit and whose ratios are out of whack. But fortunately, we’ve got a great collection of B lenders that have stepped up and are doing these deals and so they should. People have a big down payment, and their credit is not that bad, and they can afford the properties – just not on paper.
“So thank goodness for all these B lenders that are picking up the slack and getting these people to do mortgages and the rates aren’t all that crazy.”
Canada Mortgage and Housing Corporation (CMHC), the national housing agency, has recently highlighted the growth of the alternative lending space, noting that non-bank lending surged in 2022 with growth matching the pace of the banking sector throughout last year.
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