Historical article note: This article was originally published on 2018-06-11. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
In February 2018, CMHC released a survey report on Canadians’ considerations when buying a house, which disclosed some common issues that Canadians consider when buying a house. The full name of the report is the 2018 Prospective Home Buyers Survey, and you can check the full text of the report online. The interviewees in the survey report were divided into three categories: first-time homebuyers, people who previously owned homes but now do not own homes, and buyers who currently own homes and plan to purchase improved homes. Let’s compare the first and third categories of buyers to see what factors Canadians consider when buying a home.
"Why buy a house?" That is the first part of the report, "Home Purchase Drivers". The survey result is surprising but also reasonable: more than 80% of potential buyers believe that buying a house is a financial investment. The top three reasons for buying a house are to say goodbye to renting, to have a more convenient life and to own property as an investment. For first-time home buyers, 30% of them bought a house to get out of renting, 13% to improve the convenience of life, and 9% to own a house as an investment. Among consumers who now have a house to live in and purchase a house for improvement, 21% do it to improve the convenience of life, and 8% want to own a house as an investment product. People buy houses to accumulate financial assets. This reason may seem vague, but compared with renting, the goal is clear. Only by buying a house can the value of personal assets be maintained and increased. I recently read a house price appraisal report. The transaction price and appraisal price of a detached house in Markham in May 2018 were both 2.38 million. The historical transaction records on the appraisal report show that the last time the house changed hands, the transaction price was 18,000, which was in 1971. If you bought a house for CAD$6,300 with a down payment of 35% in 1971 when you were 28 years old, and sold it 47 years later when you were 75 years old, the accumulated house rights would guarantee you a decent old age. The homeownership rate of Canadians is 67.8%, and the homeownership rate of Ontario residents is 69.7%. The environment has the greatest impact on everyone. If 70% of the people around a consumer benefit from buying a house, the consumer will be influenced by the thinking that "buying a house is the right decision." There are always different opinions on the Internet about buying or renting a house. Some people who do not want to buy a house go to the Internet to find reasons and evidence for renting. What needs to be reminded is that the advice given by anonymous people on the Internet has a common characteristic: the advice giver often disguises his defense of his own situation as advice for you. Currently, renting a 2,000-square-foot detached house costs 2,500-3,000 yuan. If you buy the same house and live in it, your monthly expenses will reach 4,000-4,500. The burden of renting a house is relatively easy. For families who enjoy themselves in time, it is easy to live without buying a house when they are young, but in fact this is the most unbearable lightness in life. Life is like shopping on Amazon. Things you haven’t paid for today will not only be delivered to your home tomorrow, but also never. If you don’t buy a house when you are young, house rich will not fall from the sky when you are old.
"What are your expectations for housing?" is the second part of the report "Housing Expectations". Among the desires for property types, detached houses are the most popular, with 74% of improvement home buyers hoping to buy detached houses. First-time homebuyers do not care much about the condition of the house. 19% of first-time buyers will consider the condition of the house. Improvement buyers are relatively more concerned about the condition of the house. 32% of them are very concerned about the condition of the house. Both first-time and improvement home buyers are very concerned about whether they can "move in", with 43% and 48% respectively. Regarding the house purchase budget, 54% of first-time homebuyers and 33% of improvement homebuyers focus on properties below 300,000 yuan; 23% of first-time homebuyers and 31% of improvement homebuyers focus on properties between 300,000 and 500,000; only 17% of first-time homebuyers focus on properties above 500,000, while 34% of improvement homebuyers focus on properties above 500,000.
The financial plan for buying a house is as follows: 70% of first-time homebuyers have a down payment of less than 20%; 43% of improvement buyers have a down payment of less than 20%. 85% of first-time homebuyers plan to apply for a mortgage loan to buy a house, while only 66% of improvement homebuyers plan to apply for a mortgage loan. In terms of the source of down payment, 11% of first-time homebuyers are willing to use personal assets as down payment, while 29% of improvement buyers are willing to use personal assets as down payment, a considerable part of which comes from the net equity of existing properties.
Preparation for buying a home usually starts 1-2 years before the real estate transaction takes place. 53% of first-time homebuyers started preparing for down payment 1-2 years ago; 48% of improvement home buyers started preparing for down payment 1-2 years ago. 31% of first-time homebuyers and 36% of upgrading homebuyers start making detailed plans 6-12 months before a property transaction. 19% of first-time homebuyers and 26% of improvement homebuyers can find the target property within 3-6 months, and it takes longer for first-time homebuyers to find their ideal property. In the three months before buying a home, only 16% of first-time homebuyers were pre-approved for a mortgage loan, while 22% of improvement homebuyers were pre-approved. The findings of this report are consistent with what I see in my daily work. I personally believe that home buyers are seriously inadequate in their preparation for mortgage pre-approval. Less than a quarter of them have been pre-approved three months before buying a home. It can be said that most people sign a home purchase contract without being financially prepared. Such hasty preparations may lead to two consequences that no one wants to see: 1. After signing the contract, seeking loan approval under pressure, and being blackmailed by a non-performing loan agency or lending institution; 2. Ultimately losing the deposit due to not being able to get the loan.
Can technology replace labor, making home buying transactions more convenient, faster and less expensive? The answer is no. Among the home buyers who also made online inquiries and consulted professionals, 68% were first-time homebuyers and 58% were improvement homebuyers. A very small number of people plan to only check online without consulting any professionals. 7% of first-time homebuyers have this intention, while only 5% of improvement homebuyers only want to check the website without seeking help from professionals. It seems that Canadians are still very dependent on the path of buying and selling real estate. In the vast sea of real estate, it is difficult to complete the big business of buying a house according to your own budget within a certain period of time, relying only on free online information. The idea of some Internet and mobile Internet entrepreneurs trying to change the path dependence of North American second-hand housing transactions through disruptive innovation is still far from reality and currently only remains at the level of gimmicks.
The findings in the last part of this report are about the impact on home buyers after CMCH adjusted its mortgage default insurance policy in October 2016. This content is of little significance to today’s market, because the adjustment of OFSI’s mortgage policy in December 2017 has a far greater impact than the change in CMHC’s policy.
Judging from the full text of CMHC’s survey report, we can draw this conclusion: The decision to buy or rent depends on the family’s attitude towards the future. You can actually live well without buying a house if you muddle along and enjoy yourself. People who decide to buy a house value the future more. House buyers have high expectations for houses, and most people still yearn to buy. Independent houses, in big cities, this expectation is unrealistic; potential home buyers seriously under-emphasize the importance of mortgage loans, and it seems that buying a house is a quick trip. I can drive around and look at houses of any price, and the bank will lend me money to buy them anyway; technology and capital are the driving force to change the world, but don’t expect anything from technology. It’s too high. The Internet bubble burst in 2001. It’s better to believe in the power of capital. Especially for people living in big cities, houses have the dual attributes of livability and value-preserving assets. Unless you live in Germany or Singapore, where commercial housing accounts for less than 10%, otherwise you will have to work for the rest of your life if you don’t buy a house, because you have nothing to do without a house. Fa can sell his house for retirement; judging from the current situation, the sharing economy cannot change the pattern of the housing industry. Airbnb rents are between hotel prices and long-term rental prices. There are still a small number of people who like to expose their family privacy to travel companions. Therefore, the idea of sharing the joy of living with others when they grow old seems to be still in the "beautiful" stage. Airbnb has been around for 10 years, but it has not yet been accepted. It is estimated that it will take hundreds of years of evolution before ordinary people can accept the concept of living with multiple families under one roof. In Canada, Airbnb is moving towards a for-profit sharing model such as B&Bs, sub-rents, and family hotels, which runs counter to the communist ideal.