First-timer home buyers like low rates

For a week after they signed the papers on their Douglas Park townhome, John Morettie and Jessica Wilson felt nauseated with anxiety. Like about 40 percent of first-time home buyers, according to Statistics Canada, the couple waited until their 30s to dive in. On the one hand, they now have enough money flowing in to afford a Vancouver-sized mortgage. On the other, they need more space than a typical box-in-the-sky condo provides, due to a work-at-home situation and the imminent possibility of kids.

So thanks to a once-in-a-lifetime low interest rate, they snagged a home. But were the provincial and federal government programs effective in helping them do it? Not so much. In order to take advantage of the provincial First Time Home Buyers’ Program, they would have had to find a unit priced at $425,000 or less.

“There’s nothing out there at that price for a family, unless you’re prepared to have a crib in the [bed]room, and I don’t know what you’d do with the second one [child],” Morettie told the Georgia Straight in a phone interview as he and Wilson unpacked moving boxes. “It’s not realistic in Vancouver at all.”

The provincial program allows first-time buyers to skip the $10,000 fee for registering a property at the Land Titles Office. While the duo qualify for the new federal closing-costs tax benefit and were able to get a five-percent-down deal, those benefits were small potatoes, they said, in terms of the gigantic financial burden that comes with buying a home here.

What really helped? The 2.75-percent interest rate they were offered. It ultimately allowed them to move from a $1,800-a-month apartment into their own home.

“But we don’t have a lot of [wiggle] room,” Morettie said. “We can go up to four percent, but then we’re done.”

Historically, Canada’s average five-year residential mortgage lending rate has boomeranged from about five percent to over 21 percent, according to the Bank of Canada.

Government programs tend to be stable, but an escalating interest rate can mean instant poverty for homeowners at the end of a fixed term.

So should couples like Morettie and Wilson think twice before taking advantage of the low rates, if they’re dependent on them?

Absolutely not, says the CEO of the Greater Vancouver Home Builders’ Association. Back in 1981, when interest rates jumped into the 20s, Peter Simpson got caught in that recession-related blip himself. At the time, he also felt like throwing up. But he made it work on his $79,000 home by scrimping, and he’s been a homeowner with an ever-increasing net worth ever since.

“You can get hit by a bus at any time,” he told the Straight, suggesting that 10 years—the maximum amount of time you can lock in an interest rate—is too long a period of time to worry about. “Your jobs will probably be paying higher in five years.”¦To me, my home was never an investment. I had to be somewhere, so I never thought about five or 10 years down the road.”

Similarly, the executive director of the Mortgage Brokers Association of B.C. said interest rates are not something to worry about.

“I don’t think anyone wants to see what happened in 1981,” Tamera Olsen told the Straight. “The lenders are aware; they don’t want to see anyone lose their homes.”¦What I’m hearing is that any increase in rates will be gradual. Very gradual.”

She also said that 10 years is too far away to worry about.

However, interest rates can have a huge impact on a family that’s mortgage-stretched. For example, at today’s rate of about 2.75 percent, a 35-year mortgage on a $600,000 home would require payments of $2,221 per month, according to Vancity’s on-line calculator. The same arrangement with an interest rate of eight percent nearly doubles the monthly payment to $4,205.

What doesn’t help first-time home buyers? Pushy lenders, Morettie and Wilson said. Some brokers were able to find up to $850,000 to lend them. That’s an amount, Morettie said, that would have left them with about $100 in their pockets at the end of the month.

Also, the couple found the process highly confusing. Wilson noted that if governments want to help, a one-stop Web site for new homeowners would be welcome, along with a key to all the legal jargon.

Also, of course, a first-time homeowners’ program that’s useful to Vancouverites.

Comments

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13 Comments

mm

Jul 2, 2009 at 7:01am

First time home buyers don't HAVE to find something under 425,000 to qualify for the provincial First Time Home Buyers’ Program. The portion above 425,000 gets a small percentage "ding" and that's it. It works out to be a very small charge to the buyer and well worth it. The lawyer or notary helping with the purchase will know all about this and can give you proper advise.

Jo

Jul 2, 2009 at 10:38am

Is there ever an article in the major newspaper when its *isnt* the best time to buy a place. House prices are *dropping* each month, between 1 to 2 percent, which is a huge drop over a year. And this article is recommending to buy a place ?? How about instead of doing an article about housing, then interviewing everyone who has a vested interest in people buying houses, you actually interview people with a different viewpoint ?.

BP

Jul 2, 2009 at 3:01pm

Government doesn't "help" anyone into a house. Ask any builder and they'll tell you the biggest single cost of development is government. GST, DCC's, PPT it goes on and on and on and all of its' added to the cost of ownership. Plus homeowners fund through their property taxes all the municipal services like pools and rec centres and water systems that non municipal taxpayers use equally. Has anyone paid attention to what municipal managers pay themselves? The only reason government helps anyone into owning a home is so they can tax them more. They're leeches on the working family looking to own a home. That's the real housing scandal.

Ulsterman

Jul 2, 2009 at 7:02pm

This couple acknowledge that this is a time of historically low interest rates yet then they say this:

"What really helped? The 2.75-percent interest rate they were offered. It ultimately allowed them to move from a $1,800-a-month apartment into their own home.

“But we don’t have a lot of [wiggle] room,” Morettie said. “We can go up to four percent, but then we’re done.”

They're done at 4%! This is a stunning level of risk to take on given their limited ability to tolerate the almost inevitably rising rates. The so-called real-estate experts should be sued when rates rise a couple of % and this couple defaults.

Mike the Tenant

Jul 2, 2009 at 9:59pm

"imminent possibility of kids." Oh lovely. So where are they going to find money for that? They should have moved into a co-op so they could provide better food than KD and peanut butter sandwiches. No Disneyland vacations, or even a car trip into the Interior. Their vacations will involve whatever is free in the community, if they can afford time off away from multiple jobs. TV will be the babysitter. Welcome to life as a Vancouver homemoaner. Suckers.

Concerned Gen Xer

Jul 4, 2009 at 10:01am

By the looks of it, this couple did not receive sound advice from family and friends who are more experienced in the home purchasing department. According to various reports by the Bank of Canada, the 2.25% Bank of Canada rate will remain in place until spring of 2010, after that it's anyone's guess how high rates will go.

In the past, homebuyers who have entered variable rate mortgages have saved money over the long-term. However, times have changed, and with the change of times comes a change in strategy.

We are in a deep recession, and it would make a lot more sense for less sophisticated first-time homebuyers to lock in rates for at least 5 years to weather out this economic storm we are in. Thousands of people have lost their jobs, and many more will continue to lose their livelihood. I pray that this couple has a sound emergency fund in place to help them ride any personal storms they may face.

One of the reasons why the U.S. housing market is in such rough shape is due to the fancy mortgage products which were offerred - they started out with low up-front rates, that eventually reset to astronomical rates in the 2nd, 3rd or 4th year of the mortgage.

macchiato

Jul 4, 2009 at 12:46pm

Variable rates are set against the Bank of Canada target rate, currently 0.25%, this is the lowest possible level for them to manage their affairs, it can't go lower. In the very recent past it was 4.5%, still historically low at 4.5, so variables rate mortgages would be at ~6.5% then. A movement of around 1.25% or more will bury this couple, this could happen very easily in the medium term. The house builder, Simpson, and mortgage broker know this can happen very easily, they are suggesting excessive risk taking. The rates have been set artificially low, pushing people in that should not be there yet. Further, 5% down payment, come on. Is this what is heating the market? It's doomed.

PP

Jul 6, 2009 at 8:48am

While I'm still being cautious and waiting for my opportunity to buy something with 30-35% downpayment and 5 yr fixed rate, these imprudent people make purchases with 5% down and relying on a 2.75% variable rate and can't even deal with anything > 4%. I mean you're welcome to do whatever you wish, as long as when you go bust, the government does try to bail you out using our tax money. There better not be a government program to help with deliquent mortgage payers.

shocked

Jul 6, 2009 at 11:50am

"So should couples like Morettie and Wilson think twice before taking advantage of the low rates, if they’re dependent on them?

Absolutely not, says the CEO of the Greater Vancouver Home Builders’ Association. Back in 1981, when interest rates jumped into the 20s, Peter Simpson got caught in that recession-related blip himself. At the time, he also felt like throwing up. But he made it work on his $38,000 home by scrimping, and he’s been a homeowner with an ever-increasing net worth ever since."

That is just plain greasy. Peter Simpson's $38,000 home in 1981 adjusted for inflation would cost around $89,500 today. His little anecdote just does not apply to today's market. Does he really think that people can make up several thousand dollars per month by 'scrimping'? Talk about misleading.

Sunburned Canuck

Jul 27, 2009 at 7:47pm

Do people not read the news in the USA. I am a Canadian transplant with real estate in both countries. Look out Canada, the ripple in the pond is heading towards your shores... It is getting nastier by the day down here, and the comments from the mortgage brokers, bankers and builders will lead you off a cliff. House prices are still diving and people cannot sell the homes for what they paid 8 years ago. It is really shocking. I have sworn NEVER, EVER to purchase when the market is frothing. Get the hell out when bidding wars exist. Buy back later when the prices are 20-30-50% off.