One of my favourite things from my marketing days was visiting a new home sales centre on opening day and seeing happy first-time buyers pick out their home. In recent years, I’ve noticed this activity taper off, and I still make the occasional visit to a new home opening.
It seems like yesterday - I recall seeing young couples buying new detached homes in Brampton, Markham, Mississauga, Oakville, Oshawa, all across the Greater Toronto Area and surrounding regions. Today, I’m seeing fewer and fewer first-time buyers, even in new condo sales centres.
The BILD report for January 2019 came out yesterday and it says that the average price of a new condo in the GTA for the month was more than $800,000. The average price for a new single-family home was still over $1.1 million.
When first-time buyers, typically young, working individuals and couples, are looking for a new home, I expect their budget to be around the $300,000 mark (maybe $400,000). So, looking at the above averages makes me pretty nervous about their ability to enter the market.
In the final quarter of 2018, TREB found that the average rent for a one-bedroom in the GTA was over $2,100. That’s troubling to me because this means that potential first-time buyers are having a difficult time even saving for a down payment, let alone having the income to qualify for a high priced home.
Here are a few solutions that may help first-time buyers:
Allowing a mortgage to stretch out over 30 years instead of 25 years allows for smaller monthly payments, though the amount of total interest paid would be higher. That said, I imagine most first-time buyers aren’t paying off their first homes anyway. They’ll likely sell and move-up well before three decades pass. If a longer amortization helps make the home more affordable and helps more buyers qualify, I think it should be done (but only for first-time buyers).
Revisit the stress test
I’ll be the first to say that the stress test made sense in 2018. It did its job. The market moderated. But as price growth slowed, sales dropped off - especially among first-time buyers who were already having a hard time qualifying. Now that price growth is steady and interest rates are slightly higher, it’s time to revisit the stress test. I think knocking it down to 1% would be a fair gauge as to whether someone can afford a home in our market.
Increase the first-time buyer tax credit
Right now, the first-time buyer tax credit can equal a rebate of $750 if you claim $5,000 of your down payment on your tax return. To me, this is not enough. It’s better than nothing, but it’s closer to nothing. I think first-time buyers should be allowed to claim a higher amount of their down payment, which would result in a larger rebate. Am I crazy to think that maybe first-time buyers should be able to claim the entire down payment?
Increase the land transfer tax rebate
When the LTT rebate was announced, it was a game changer, especially in Toronto where you pay municipal and provincial LTT. But, I think this rebate should increase, too. If a first-time buyer buys a new home in Toronto
for $400,000, they’ll only pay $475 in LTT, instead of $8,950. This is a significant savings!
But let’s remember what the average price of a new condo is in Toronto. If a first-time buyer somehow manages to buy an $800,000 condo, they’ll still owe $16,475 in LTT, even after the $8,475 rebate. Perhaps first-time buyers shouldn’t pay LTT at all?
Some of these ideas may sound extreme, but in my opinion, if the young, talented people in our country can afford the lifestyle they deserve, then the economy and everyone benefits.