Homebuyers are focused on affordability, and making more sustainable financial decisions than in previous years
January 29, 2020
By Sam Carnovale, Director of Financial Institutions, Canada Mortgage and Housing Corporation (CMHC)
Every year, CMHC carries out an in-depth survey of Canadians to find out their perspectives about homeownership and the home-buying process.
This year, we had 1,385 first-time and repeat homebuyers take part. The participants are people from all across Canada who had undertaken a mortgage transaction in the past 18 months.
Our survey showed that as the market continues to change, so do buyers’ perceptions, behaviours and expectations.
Top three “must haves” when buying a home
As may be expected, affordability is the number one factor affecting homebuyer decisions. While the old adage says, "location, location, location," 2019 homebuyers are mostly concerned with affordability.
We asked Canadians what they felt were their “wants” and “needs” when it came to buying a home. The top three “must-haves” were:
- Number of rooms
- Proximity to public transit
It is interesting to note that significant factors, such as a newly built home, ranked at the bottom of the “needs” of 2019 homebuyers. Additionally, there was a significant decrease in the percentage of buyers who listed a "move-in-ready" home as their top preference. Only 6% of homebuyers wanted a turnkey house in 2019, compared to 11% of buyers in 2018.
Despite price and affordability being top of mind for today’s homebuyers, it is still important for potential homebuyers to first find out if they are financially ready to buy a home. You can find out by using CMHC’s homebuying guide, checklists and workbook.
Text version: Want vs. need
Price/Affordability: 20% Want; 80% Need.
Number of rooms: 27% Want; 73% Need.
Proximity to public transit: 33% Want; 67% Need.
Number of bathrooms: 40% Want; 60% Need.
Proximity to daycare/schools: 42% Want; 58% Need.
Proximity to work: 44% Want; 56% Need.
Condition of home (i.e. move-in-ready): 46% Want; 54% Need.
Type of home (i.e. single, condo): 47% Want; 53% Need.
Proximity to family/friends: 49% Want; 51% Need.
Overall living space of house: 50% Want; 50% Need.
Outdoor space: 52% Want; 48% Need.
Proximity to nature/outdoor spaces: 53% Want; 47% Need.
Type of neighbourhood: 56% Want; 44% Need.
Proximity to shopping/restaurants/entertainment: 58% Want; 42% Need.
Number of Canadians buying the highest priced home has decreased
This year, there was a dramatic decrease in the number of homebuyers who chose to spend the maximum amount they could afford on their home. 60% of homebuyers bought the highest priced home they could afford, down from 78% in 2018. This may suggest an important change in behaviour amongst Canadians that they seem to recognize the importance of ensuring they can actually afford the home they are buying.
Here are some questions to ask yourself to help you determine what price you can afford:
- Compare how much you currently spend on expenses and debt payments with the amount you have saved or invested
- How much can you afford to spend on housing each month without risking your financial health
- How much do you need to save to pay for the upfront costs of buying a home
Most buyers impacted by “Stress test” still able to buy a home by adjusting finances
It has been over a year since the Government of Canada instituted the mortgage qualification rules, or “stress test.”
While 76% of homebuyers said the changes had little or no impact on their decision to buy a home, those impacted were able to still buy a home by adjusting their finances.
These adjustments included buying a smaller or less expensive home, cutting back on other expenses, or utilizing more savings to afford a down payment.
Mortgages and consumer debt remain a challenge, but consumer confidence is strong
Consumer debt continues to be a significant challenge. Around 23% of homebuyers in 2019 said their current level of debt is higher than they were expecting, up from 19% in 2018. And the majority (59%) of buyers reduced their non-essential expenditures after purchasing a home.
However, the overwhelming majority (86%) of buyers in 2019 didn’t have difficulty maintaining the schedule of payments for some of their existing debt obligations since starting their mortgage.
There are also positive trends in consumer sentiment towards buying a home. 87% of buyers said they were confident in the long-term financial prospects of homeownership.
Other signs of steady consumer confidence in Canada’s housing markets included:
- 32% of buyers are paying more than their minimum mortgage payments
- most buyers were consistent in their monthly budgets, both before and after buying a home
- most homebuyers (61%) set aside a “buffer” for possible higher expenses in the future
Nonetheless, everyone's financial circumstances are unique, and you need to carefully determine what type of housing is the best option for you. You can do so by asking yourself these 5 questions.
CMHC’s Homebuying Step by Step Guide helps you look at housing options, expected costs and your personal financial situation, to help you decide whether homeownership is right for you. We also offer a series of home buying calculators to help you in your planning. For more information on the survey and its key findings, visit cmhc.ca/2019mcs.
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