Toronto

Altus: Half of Toronto Real Estate Buyers Were First-Time Buyers

Toronto real estate is super expensive, which is why there’s so much political support for first-time buyers… right? What if we told you  first-time buyers might be a large part of why prices are so high? Altus Group, a massive real estate insight company, published survey results on first-time buyers. The claim that first-time buyers need more support to get into the market seems to be largely unfound. In fact, the survey showed that inexperienced buyers are likely a significant driving force in this price expansion.

Toronto Real Estate Buyer Characteristics

Toronto real estate buyers have been relatively young, inexperienced, and don’t make all that much cash. Over the past 5 years, 4 in 5 buyers were less than 50 years old. 1 in 2 buyers were first-time buyers. 6 in 10 had household incomes lower than $100,000 per year. 4 in 10 used a high-ratio mortgage, meaning they had a downpayment lower than 20% of the value at purchase. Also, a third of these buyers are on variable rate mortgages. We know, you can’t pay attention to anything other than half of recent buyers were first-time buyers. Shatters quite a few narratives.

Altus - Half of Toronto Real Estate Buyers Were First-Time Buyers - Characteristics
Source: Altus Group. Better Dwelling.

How Did First-Time Buyers Pay For Their Home?

First-time buyers actually represented a significant portion of the market, but how are they paying for these homes? Using an aggregate of survey sources, Altus found that 79% of homebuyers tapped non-RRSP savings and investments for their downpayment. 36% used savings and investments held in their RRSPs. 49% of them used gifts and private loans from friends and family. 12% tapped their inheritances, and another 7% used a line of credit. The survey data runs from 2014 to 2018, and Altus notes it includes multiple sources which add up to more than 100%.

Altus - Half of Toronto Real Estate Buyers Were First-Time Buyers - How First Time Buyers Buy Homes

Source: Altus Group.

First-time buyer sources of downpayment is interesting, because of the concentration of net-worth. By selling or removing income from their investments and RRSPs, like 79% and 36% of people did, they’re placing a lot of risk in a single asset class. Further, those that borrowed the downpayment from friends and family, also have less equity in the home than most people assumed.

One more takeaway is re-considering the effectiveness of first-time homebuyer programs. Typically, although never publicly discussed, first-time homebuyer programs are expanded at the end of a housing cycle. The reason being the end of the housing cycle means a rise in unemployment, creating distressed asset holders. The “overhang” is thus reduced by allowing first-time homeowners to help mitigate some of the losses of distressed buyers. If half the market is already first-time buyers, Toronto will be creating a lot less liquidity than expected.

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46 Comments

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  • Reply
    Twiggy 9 months ago

    I’ve been saying this for awhile. There’s two people that say buying in a bubble is a good time. There’s older people, that already own a home – and its produced multiples of their income over the past few years. These are people that don’t understand their cost basis, and might even be doubling down using a HELOC to buy a second home for that sweet negative cap rate.

    Then there’s lower middle income households, that think it’s what’s going to go help them transcend classes, only receive advice from their parents, or think they’ll be locked out forever.

    • Reply
      Staying Put 9 months ago

      I’m in the camp of six-figure income, and renting. Despite the narrative that rent is sooo expensive, I’m only paying $1200 for a nice one bedroom downtown. The new “rental” rates only apply if you’re in a amateur speculord’s condo who can’t handle the bills, or you’re moving around and refreshing your “market” rate.

      Not moving around is one of the easiest ways to stop wasting money on rent, and moving expenses.

      • Reply
        vnm 9 months ago

        Sure, there are numerous long-term renters in protected buildings doing just fine, and not all landlords are profiteers, but it’s not a “narrative”, rents are out of control. A third of Torontonians would be hard pressed to afford $1200/mo in rent. Imagine a single parent with kids working for minimum wage, trying to survive on $2,000/mo.
        And not moving around isn’t much of an option when investors flip properties and jack up the rent, forcing you out.

        • Reply
          eviction expert 9 months ago

          there should be no rent control. If you can’t afford please leave and move to another city. We can’t have below market rents and the rest of society paying for your rent via affordable housing. single parent with kids with minimum wage put themselves in that position. not my problem to bail this person out with my hardwork and sacrifice. have you been in a rental building recently? terrible conditions, 3rd world smell and behaviour. yes, below market rents but look at the conditions. for ‘staying put’ your landlord can easily sell the unit or move in and then you will be back in the free market. owning means stability. long term renting is for idiots.

      • Reply
        Beh G. 9 months ago

        You are definitely an exception Staying Put. I was paying $1,200 a month for a downtown condo back in 2004! It was a brand new building with the exceptionally low starting maintenance fees of $280 a month.

        I’m guessing those maintenance fees are now $500 so I doubt you can rent the same unit for less than $2,000. I mean if you just add the increase in maintenance fees that the landlord has to pass on to the tenant and 15 years of inflation at just 2% you get more than $2,000.

    • Reply
      Orionthehunt3r 8 months ago

      So then what a first time buyer, like me, to do? I have $100k down payment ready. Do I wait for the crash/correction? How long will that take?

      Liquidity drives the market right? So now that the FED is lowering the rates again, I’m sure Canada is sure to follow suit? That would provide more cheap liquidity and then thearket heats up again. Or is the FED tapped out and we’ll see better prices relatively soon?

  • Reply
    Iol 9 months ago

    Last stop for the dumb money train.

    • Reply
      Mtl_matt 9 months ago

      Call you up in the middle of the night
      Like a firefly without a light
      You were a real estate agent I knew
      I was a fool that you could easily screw

      So tired of paying rent
      So many safeguards you could help me circumvent
      Promised myself I’d be rich
      One more debt slave you could easily hitch

      It seems no one can help me out of debt now
      I’m in too deep underwater wow
      There’s no way out of this variable loan
      This time I really cannot postpone

      Runaway debt never going back
      Wrong way on a one way track
      Seems like I should be getting somewhere
      But after all I was going nowhere

  • Reply
    SUMSKILLZ 9 months ago

    I wonder how many 84 month car loans are held by first time buyers? I wonder how many first time buyers also have huge education debt piles to service?

  • Reply
    vnm 9 months ago

    Truly frightening. The BofC and many layers of government have facilitated a Ponzi scheme virtually guaranteed to force feckless borrowers into bankruptcy. Maybe not now, maybe not even in 5 years, but long before the insurmountable debt several times over can possibly be paid off.
    Bernie Madoff is rank amateur compared to these vultures.
    It really is reminiscent of greed-addled lords and serfs. I know, we’ll tax them to death. oh, wait, oops.
    Whether one has sympathy or not for the families in distress, another thing history proves, you can’t maintain a civilization or society without a stable, workforce. Existence 101.
    And only 1 in 6 new condos were bought by first time buyers. So much for the theory that the reason why condos are so inflated is that it’s the only affordable option. Significant that 6 in 10 buyers have income < 100K, which is the absolute minimum currently needed to buy an entry level 1-bedroom. condo.
    Perhaps the scariest report BD has published yet.

  • Reply
    Asterix1 9 months ago

    What twisted logic could make you buy a condo in 2019 in GTA!

    It makes no financial sense at those prices. The fall in condo prices will be severe when reality finally sinks in.

    • Reply
      kwo 9 months ago

      What chyou talkin’ bout? Everybody knows real estate in the GTA only ever goes up.

      Except the 80s. And the 90s. And that weird year in 2008 when Harper stealthily bailed out the banks (and TD, for some reason, issued $1 billion in 100 year bonds yielding prime+10%, the so called TD Capital Trust IV, and CIBC did a similar thing). And also 2018. But buy now!

      This time it’s different. We’re special. Buy now! Buy 2 condos, just in case!

  • Reply
    rx81 9 months ago

    What is the source on 6 in 10 households have income less than 100k?

    I question this because a good portion of people in the GTA work contracts and are incorporated to save on taxes and writeoff regular expenses. Just because they’re paying themselves a lower salary from their own corporation to stay in a lower personal income tax bracket doesn’t mean that the salary they pay themselves is the only cash they have access to.

  • Reply
    Cat 9 months ago

    Well ,if they claim a lower income won’t qualify for a mortgage,then will have to go to alternative lender and pay more.

    • Reply
      Joe 9 months ago

      Since they pay less taxes through ‘lower income’ they will have more cash for down payment.

      • Reply
        Sam 9 months ago

        Guess you missed the part where it says 4 in 10 put down even less than 20%!! You think people are buying million dollar homes with 50% down? lol

      • Reply
        vnm 9 months ago

        Some people get all the breaks, the lucky bastards!

  • Reply
    Jon Tario 9 months ago

    This is just insanity. How are people getting approved for mortgages when they make less than 100k? Just for funsies lets put that into a mortgage calculator and be very generous. With 100k cash for DP and a interest rate at 3% and income at 99,000 you are still only looking at a max purchase of 650k (no condo fees and assuming no debt). Also no stress test here in fantasy land.

    Whelp, guess that explains the current state of things…. and the future of things.

    My heart goes out to these poor scrotes who signed up for a mortgage at 5-6x annual salary. That is no kind of life. YOLO my friends, YOLO.

    • Reply
      JJ 9 months ago

      This is also what I struggle to understand.:

      If you have 20% down on a $1M dollar home and a household income of $200k a year (2.5x the median income), you are looking at $4k a month in mortgage alone and probably another $1k a month in “household” costs including taxes, maintenance, utilities, etc. This amounts to $5k a month, and is approximately 50% of a 200k household income after-tax.

      Firstly, who in their right mind wants to spend 50% of their after-tax income on housing, and secondly, that is for a $200k household income. Just guessing here, but that is probably the top 10% of the population.

      If approximately 90% of Toronto’s population has to spend over 50% of their income to buy a house, who is buying this crap? Are people just that confident in the market?

      • Reply
        BigTroubleinLittleTO 9 months ago

        You just explained my exact situation.. I feel like i’m taking crazy pills in that, I don’t want to spend 50% of my income on a 100 year old townhouse for a front porch and no parking.

        Who the f*k is buying this shit..

  • Reply
    DB 9 months ago

    Are there that many poor souls out there who can’t do math and have a little common sense to see things just don’t look right here. Are these the guys who say they’re on a low carb diet but all they can afford to eat is rice. :/

    • Reply
      Joe 9 months ago

      Just like this, 2 bedroom semi on a 15 foot wide lot sold for almost a mil in east end Toronto…I wonder who bought this.

      https://housesigma.com/web/en/house/NAKv53DAGv5YMnxB/118-Merrill-Ave-E-Toronto-M4C1C9-E4353203

      • Reply
        Jon Tario 9 months ago

        Wow. seriously. I know this nabe well and it’s grody to the max. Nothing cool around there- okay maybe one place. but still. why??? why???

        I saw something similar right around the corner on Coxwell go for like 150,000 less just a few months ago. Same layout but larger lot. I saw a young couple move in. I hear everywhere I go young people talking about buy now, buy now before its too late. I guess they think they should max the budget or never own. EVER. *sigh* My words of wisdom to them: Never run toward home ownership in fear or you’ll end up pissed (or in Hamilton).

        • Reply
          Joe 9 months ago

          Yeah, I know that neighborhood as well…it’s not that bad but not fantastic. Being close to the subway does cut commute time to work a lot but I simply have no idea why this house on such a small lot and only 2 bedrooms sold for almost a mil.

          I do see houses below the 1.5m range rising and those above it falling in the 416…possibly driven by the narrowing price between condos and these houses. Paying 100/200k more for land seems worth it compared to a box in the sky!

  • Reply
    John 9 months ago

    To everyone asking why people are buying…

    You’re asking a question in the same blind fashion as the people who are buying.

    My wife and I don’t want to over leverage ourselves on household debt. But we also want a family, and a basement apartment isn’t the ideal spot for that… a SFH is.

    So as we get older our childbearing years will slowly slip away, but we will always be able to make another buck tomorrow… so at what point does the scale tip debt control to family and we buy a house in the market of that day.

    I haven’t reached that tipping point yet… but have others? I think so. I think that’s why some people are still buying… and I think this is why government intervention is most necessary.

    • Reply
      SUMSKILLZ 9 months ago

      Babies don’t need much space. Loved raising a baby at Yonge and Bloor. A five year old needs regular access to outdoor space like a playground or school yard. By eight or nine, they need a neighbourhood they can roam. Don’t get caught up on having a backyard, they are so over rated.

    • Reply
      george 9 months ago

      I see where you are coming from…however, to overextend and pay 30 years up to your nose giving away your best years of life to feed the banks because of the pricing going crazy due to speculation and greed?
      Yes, you may end up with a nice house, but the does it REALLY worth it? This is what I see with my friends who purchased sfh or th in hongcouver. Their house is their prison…they purchased right before the mortgage stress test, and now their mortgage is their stress. I can’t understand how people can live like this…and for sure they don’t admit, but I can see their suffering.

    • Reply
      John 9 months ago

      I completely agree. But I’m highly critical of the housing market. For those who are more concerned with TMZ’s latest scoop than their long term financial stability… why wouldn’t the canadian dream take over?

      I just think the question “why are people still buying?!?” is extremely complex and not just a matter of logic.

      People with a simple tax returns still pay hundreds to get their taxes done instead of using studio tax… you think they understand the mortgage they sign for?

    • Reply
      JJ 9 months ago

      Agree with this sentiment, but rationally speaking there is no reason one cannot rent a SFH or TH and raise a family: I see pretty nice 3 bedroom places listed within reach of the subway in TO for around 3k a month (which is still high don’t get me wrong, but considerably less than the 5k/month it might cost one to own the same property).

      Again, I don’t blame people for wanting to own as I want to. Something feels right about owning a property, knowing you can’t get dicked around, and having a place to call home. That being said, I do think it’s a stretch to say one can’t raise a family while renting.

      • Reply
        @xelan_gta 9 months ago

        Bingo! You can rent exactly the property you want to buy and have 0 exposure to any risks related to the housing downturn.
        There are times when it’s better to own and those when it’s better to rent. Risks are extremely asymetrical now so it’s much safer to rent.
        I haven’t seen any singe piece of analysis predicting prices to surge in 2019 but there are a ton of ones pointing to potential correction, even BoC’s recent MPR mentioning it as an active risk to the economy. (page 20)
        https://www.bankofcanada.ca/wp-content/uploads/2019/01/mpr-2019-01-09.pdf

        • Reply
          JJ 9 months ago

          Very interesting read.

          I also find it interesting that the BoC has removed the risk of “stronger consumption and rising household debt” due to “consumption growth softening, weak disposable income, weak income growth, falling savings rate, vehicle sales softening, and deteriorating consumer confidence”.

          I would venture to say that ALL those factors that have removed that particular “risk” of debt growth will greatly contribute to a weakening economy… Those stats scare me anyways.

  • Reply
    Zenity 9 months ago

    What a sad state of affairs, the government is complicit in pushing the house prices higher by forcing the green belt. Canada is one of the least urbanized countries in the world. As a nation we do not need more green belt. The green belt’s area is neglecgible in the grand scheme of thing. The government is pushing prices up so it can collect more taxes. Time to fight back people

    • Reply
      James 9 months ago

      They keep the greenbelt because it’s the best farming land in this part of the country. If anything were to happen in the world, like say a food shortage, we use that land to produce our own resources. Right now we count on other places in the world to get our food on the cheap. It’s not unfathomable to think one day on the future that may become a problem. Once the land is developed it is ruined for agriculture.

    • Reply
      cplants 9 months ago

      James is absolutely right. I grew up in the city but have worked in the bush my entire adult life. What floors me about all this housing price madness is how people seem to have zero clue how valuable good, productive land is and gravitate to overpriced boxes in the sky or tiny postage stamps of land with way too much house on them. For me, owning a home is only useful to me if I can grow my own food on it if it came down to it. Keeping the greenbelt and other equivalents like BC’s Agricultural Land Reserve is vitally important, especially since current agricultural practices will strip away the vast majority of topsoil within 60 years. Once that’s gone, it’s gone forever.

  • Reply
    Chris 9 months ago

    Definitely tough but for all the people aaking who’s buying you have to understand that each person’s situation is different and so are their goals. Our property cost 1.05m in North York and we put 20% down in April of 2018. The monthly mortgage payment and insurance are approximately $3450 and taxes are just under $4300 annually. We rent the main floor out for $2500 and the tenants pay all utilities. Leaving us with $950 a month in mortgage and insurance costs plus $4300 annually (the property tax) as our housing expenses for a grand total of $1300 a month. It leaves us with ample room to save and even accelerate our principal pay down if we so choose. The goal is in a couple years to start a family and at that point do a swap, move upstairs and rent the basement. We didn’t buy as an “investment” but if we can live in our own property, live close to our work, the community we grew up in, and most importantly, live close to our families, it’s well worth it. House prices have fallen in the past. 80’s, 90’s, 2000’s etc. But if you’re goal is owning a place over the long run you’ll notice that they’ve always recovered and then increased to where we are now. Just my 2 cents. Thanks.

    • Reply
      MP 9 months ago

      Hi Chris,
      congrats on your new home, and I am glad that you are happy with it. But just a couple of points to anyone considering buying with a similar point of view to yours. In terms of real money (monetary value adjusted for inflation) the 1989 real estate price decrease did not recover until 2009/2010. This means that if you bought at peak in 89′ and sold around 09/ 10 you would have made as much growth with your money sitting in a saving account making interest…but in a savings account you wouldn’t have had to have paid hundreds of thousands on mortgage interest.

      This common euphamism that real estate always goes up is a big part of the problem and leads people to make bad decisions that destroy their lives (think USA ’08). This way of thinking (it alwasy recovers and increases to where it is now), is actually also true of the equities market (i.e. stocks), and for that matter the bond market. Any market that exists, over an extended period of time, generates value – if it didn’t, then said market would decay and would no longer exist. Hence, this mantra that real estate always goes up is true of any market, and does not inherently imply the real estate market is a ‘SAFE PLAY’ – it isn’t always, just like the other markets aren’t always.

    • Reply
      JJ 9 months ago

      Totally agree that this situation makes financial sense. I think many of the $1M+ questions are referring to the small 3 bedroom townhomes or semis that do not have rentable space. If you can have someone else help pull the strings of your mortgage, power to ya! That being said, these properties are rare and I don’t think this is the situation for many buyers.

    • Reply
      @xelan_gta 9 months ago

      Chris, the math definitely works so far for you and that’s really great but it doesn’t prove that today it’s a good time to buy.
      If you take person A who bough similar property in 1989 and person B who did it in 1996, person B would be a millionaire by the time person A just finishes paying off the mortgage.

      Every $100k invested into stocks turns into $500k 25 years later, so every $100k you overpay for the property now reduces your retirement fund by that amount.

      Plus don’t forget that after 1989 both prices and rents went down and it’s fully expected to be the case now as well due to a cyclical temporary migrants who are the major force behind current population growth.

      It is extremely difficult to time the market though but if you are able to do it right you will be much better off financially than if you buy at the peak.

    • Reply
      Alex Beis 9 months ago

      You paid 1 million dollars to live in your own basement while someone else lives above you and the bank gets rich. ROFL

  • Reply
    Mark Glover Masterson 9 months ago

    That’s a truck load of people getting screwed. 🙄 #goodluck

  • Reply
    Rana 9 months ago

    Housing
    Market does not depend on dumb calculations

  • Reply
    Rana 9 months ago

    If want to live in worlds most desired cities u have to pay the price or move 500km away from here and come here once a year or so

    • Reply
      Chris 9 months ago

      I respect your response and I do agree for the most part with it. The problem is you are looking at it from a completely financial perspective which I don’t agree is the only way to look at it. Home ownership is more than just that for me. Also as someone versed in stocks and the markets you know that past performance is no indication of the future, be it positive or negative so that same person buying in the 90’s and having a certain “return” doesn’t indicate what someone over the next 20-30 years return will be. Lastly calling the recent spike in immigration a temporary thing I feel may be a bit preemptive. I can’t predict the future but I don’t see that stopping anytime soon. I personally don’t see the huge appeal but many want to live here and they keep coming. Again, just my opinion.

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