Pandemic-driven demand leaves first-time homebuyers feeling dejected


Rowena and Travis had looked at dozens of homes all over Winnipeg for several weeks.

They’d bid on so many, only to lose to higher bidders, they’re not sure how many offers they made.

The 30-something couple, who work in the non-profit sector, had been renting. But the parents of two young children decided during the pandemic it was time to buy and got pre-approved for a $350,000 mortgage.

“We almost quit,’” says Rowena. “The bidding wars were that challenging.”

In the end, they found a 900-square-foot, renovated home in Transcona in the east end after returning to lenders to borrow even more.

“We had just lost out on a home with 20 other bidders,” says Rowena, who did not want her full name used. “That’s when we had to figure out if we could increase our buying power.”

In the end, the couple got pre-approved to borrow about $400,000.

“So we thought, ‘Let’s just go for it with whatever we believed we could afford monthly,’ ” she says, adding they received a gift from family to help with a 20 per cent down payment.

Their winning bid on a home listed for $299,000 was $361,000, a price tag Rowena uttered in a slightly hushed tone as if still somewhat shocked and abashed by the large sum.

Many first-time buyers everywhere have been facing sticker shock over the last 18 months as COVID-19 and historically low borrowing costs have driven demand and prices for single-family homes.

“The biggest challenge is winning the bidding wars,” says realtor Colin Kiddell with Royal LePage Prime Real Estate in Winnipeg.

“It’s not uncommon to have 10 to 20 offers on one property, and only one buyer is walking away with it.”

The conditions have led to record prices amid strong demand and tight inventory especially for mid-range priced single-family detached homes.

In March, the average price (for a single-family home reached an all-time record $439,535, amid a 26 per cent drop in year over year listings, even as sales fell 27 per cent, according to recent data from the Winnipeg Regional Real Estate Board.

Bidding wars and surging prices are indeed daunting for first-time buyers, says Aaron Brager, a mortgage specialist with Castle Mortgage Group, an association of TMG.

“We have had a number of clients who have been through the pre-approval process, some as long as a year ago,” he says.

“All have experienced different levels of frustration.”

Winnipeg first-time buyers, however, are not on an island in this respect. A recent RBC survey found almost half of respondents across Canada noted saving for a home is stressful.

“Homeownership still continues to be a priority for first-time buyers,” says Andrea Metrick, a senior director for home equity financing at RBC.

“But affordability remains a big stressor.”

The survey broke down findings by region, revealing stress is subjective with 51 per cent of Manitoba respondents, for example, indicating feeling financially overwhelmed by the process. By comparison, only 43 per cent felt that way in Ontario, and 42 per cent in B.C.

That’s despite benchmark prices of single-family detached homes in the Greater Vancouver and Greater Toronto areas exceeding $2.1 million and $1.7 million respectively, based on Canadian Real Estate Association data from March.

The recently announced tax-free savings account for home buyers, in addition to existing federal programs like the Home Buyers’ Plan and the First-time Home Buyer Incentive, are likely to continue to fall short of helping first-time buyers in these markets.

That’s led to the rise of new companies like Ourboro Inc., which started co-investing with first-time buyers in the Greater Toronto Area last year.

“In market’s like Winnipeg, the First-time Home Buyer Incentive is an option because prices are within the range the program allows, but in Ontario, it is quite restrictive,” says Alex Kjorven, Ourboro’s chief product officer.

Many buyers in expensive markets like Toronto, for example, likely will not qualify for the federal program because it is limited to a maximum of $150,000 of total income. Additionally, the home price cannot exceed 4.5 times income. (In less costly markets, like Winnipeg, the maximums are $120,000 and four times income.)

Ourboro provides an alternative.

It offers to co-invest up to 75 per cent of the down-payment or 15 per cent of home value. In turn for a $1 million home, a buyer needs the minimum five per cent — $50,000 — and Ourboro invests $150,000, helping make monthly payments more affordable, she says.

“So Ourboro then has a 75 per cent stake in the future appreciation of the $200,000.”

Kjorven adds the company is repaid when the property is sold, much like the federal program, or after 10 years.

By then the presumption is that owners can refinance and buy out Ourboro’s stake.

“Our data suggests 95 per cent of first-time buyers sell within 10 years,” she notes.

“They use that starter home to build equity to buy a second home — hopefully without Ourboro.”

With home prices setting records across Canada, Ourboro already has expansion plans on the horizon. Whether that includes Winnipeg remains to be seen, given how affordable prices are compared with the GTA.

That could change in the future if the city follows the same growth arc as the GTA when in 2005 its benchmark price for a single-family home was $347,000, increasing about 460 per cent since.

For new homeowners like Rowena and Travis, future price gains would be welcome to build equity — though less important at this point.

“We just feel lucky to have found a good house to raise our kids,” Rowena says.

Source link