Stephanie Armour
USA Today

This month, Jamie Watt and her fiancé, Ben Arnold, expect to own their first home, a three-story townhouse with a spacious deck for entertaining and a spanking-new kitchen with a stone countertop.

As first-time home buyers, they’re part of a critical demographic shaping the spring housing market.

Whether enough first-time buyers such as Watt and Arnold come forward in the next few months could undermine — or stabilize — the housing market’s already wobbly recovery.

Much rests on how tantalizing a tax credit of up to $8,000 will be to first-time buyers, but buyers must sign purchase contracts by April 30 to qualify. The same deadline applies to the credit of up to $6,500 for repeat buyers. Time is running out.

After the spring flowers fade, many believe first-time home buyers could, too.

“I don’t know how many first-time home buyers have the money and jobs to be much of a factor once this tax program ends,” says Joel Naroff, with Naroff Economic Advisors. “The tax credit concentrated a year’s worth of sales into a six-month period. I think first-time home buyers will fade into their normal part of the market after this ends.”

Thousands of first-time home buyers — with weeks left to qualify for the credit — are now making harrowing decisions that could alter their lives.

For Watt and Arnold, buying their first home was a nail-biting wait to find out if they could get financing. There was falling in love with a house, then hoping the sellers would accept their offer. There was a counteroffer.

“The whole process is completely overwhelming,” says Watt, 27, of the $310,000 home they’re buying in Crofton, Md. “I can see us there at our little cafe table having breakfast in the morning. I can’t wait. It seems like a great place to start a life together and start a family.”

Low rates and prices

It’s not just the tax credit that has first-time home buyers such as Watt and her fiancé dominating the spring housing market. Interest rates are hovering around a low 5% on a 30-year fixed-rate mortgage, and home prices in many markets have fallen to levels that make purchasing as affordable as renting.

First-time buyers generally tend to increase as a share of buyers during recessions, but rarely have their numbers been this high; 47% of buyers in 2009 were first-timers, a record high, according to the National Association of Realtors (NAR).

That’s higher than during the 1991 recession, when 44% of buyers were first-timers, and the recession of 1981, when 44% of buyers were also first-timers. Compare that with the housing peak of 2006, when 36% of home buyers were first-timers.

Even with low interest rates and the temporary tax credit, home sales slipped in December, January and February, although most economists are expecting some pickup in March and April as first-time buyers rush to close on housing contracts before the credit ends.

Still plenty of worries

Anxiety about the housing market could keep some first-time buyers at bay.

Janet Koelsch, a Realtor with Coldwell Banker in Scituate, N.Y., says her first-time buyers are eager to buy but often afraid because of the horror stories they’ve heard about homeowners losing money in today’s tepid housing market.

“They’re really fearful. There’s a fear of the unknown,” she says. “But the stimulus package is allowing them to buy when they couldn’t before. I love their zeal. They’re excited; they’re like sponges, they want to absorb all the information. I get so emotionally connected to them. It’s the biggest thing they can do in their lifetime, other than having a child or getting married.”

Some first-time home buyers say they overcame any anxiety because they didn’t want to miss out on the financial incentives.

For Michael Jennings, 27, of Wilmington, N.C., buying his first home in March took three months of looking at more than 15 homes. What finally pushed him to make an offer was the prospect that waiting too long would cause him to miss out on the tax credit.

Jennings, who works in the construction industry, went for a home with a wrap-around porch in an older neighborhood near a shopping center for $238,000, and his seller came down in price. He got a fixed 30-year mortgage with a 5.2% interest rate.

“The tax credit was a big factor. I wouldn’t have moved as quickly as I did,” Jennings says. “You really hate to miss out on that chunk of change, that $8,000. And this house had everything I was looking for. I’m very happy.”

To make the down payment, Jennings took out some funds he had invested in the stock market. He plans to use the $8,000 tax credit to replenish those funds.

A new breed of buyers

First-time buyers such as Jennings are more than typical home buyers. They’re also a unique demographic who are highly sought after by sellers. First-time buyers are pickier than move-up buyers. They’re more likely to find their home using the Internet than in years past, and they’re likely to have bigger down payments than in years past.

First-time buyers now live on the Internet: 93% used the Web as a search tool, compared with less than 1% of first-time buyers in 1995, according to NAR. Their average age is 30, putting them on the leading edge of Generation Y, a well-educated and savvy generation that wants quick responses and fast turnaround times.

They are also selective: They spend a median of 12 weeks looking for a home, while repeat buyers spent an average of 10 weeks.

Their median income is $61,600, they buy a house with an average value of about $156,000, and their median down payment in 2009 was 4%, up from 2% in 2005. In 2005, 43% of first-time buyers purchased with no down payment; in 2009, that had dwindled to 20%.

Realtors such as Jessica Riffle Edwards of Wilmington say they must work hard to reach out to this younger demographic. She tries to target the first-timer through a video blog, where she’ll sit in her BMW sedan and videotape herself talking for two to three minutes about various topics of interest.

“It’s exciting to work with them so they can have this place they can call home,” she says. “They’re making this awesome step, this first step of purchasing real estate.”

She believes enough first-time buyers will come forward before the tax credit expires to give a needed boost to the housing market.

“I am seeing a lot more interest, though, from first-time buyers in recent weeks,” Riffle Edwards says.

Signs of pick-up

Some signs of life already are being seen in housing sales, suggesting the tax credit is helping. Contracts for previously owned homes jumped unexpectedly in February, with the seasonally adjusted index of sales agreements rising 8.2% compared with January, according to the NAR. It was the second-biggest gain on record.

First-time home buyers “are critical for bringing down inventory. That’s what’s needed so we can go back to a normal housing pattern,” says Lawrence Yun, chief economist with the NAR.

An earlier tax credit that expired in November caused a surge in first-time home buyer sales.

This spring, he says, “We may see a very significant second surge,” although that’s likely to be followed by a drop-off in sales in June through August after the credit expires.

Still, luring first-time home buyers in now is especially vital to building momentum, because interest rates are expected to edge up to around 6% later this year, and that could act as a drag on home sales.

But some question the wisdom of using incentives to motivate first-time buyers for the spring housing market. Why drive up sales for a short time, critics say, only to have them fall off once the credit is no longer in place?

“I find these incentives to be stupid,” says Brett Barry, a broker with HomeSmart in Phoenix. “They’re artificially holding the market up and using taxpayer dollars. I don’t like it.”

Tax credit is fine but …

Some home buyers say getting the tax credit would be nice, but they’re not willing to buy a house just to get the financial incentive. They’re determined to wait to find the best deal — even if that means they don’t buy this spring.

Chris Rusnell, 24, of Phoenix, has been looking for a house for about a year, but it took awhile before he could clean up his credit and qualify for a loan. He’s interested in getting a bank-owned home because he thinks it will likely be a bargain. So far, he hasn’t found one in the right location. He’d also like a three-car garage to store all his tools.

“The tax credit is out the window. Who cares about that?” says Rusnell, a plumbing contractor and father of two boys, ages 4 and 11 months. “I’d like to buy in that time period, but it’s become evident it’s not going to happen in that time. I just want to get out of renting. It kills me every day sending a check out.”

 

Sun

Royal Bank of Canada and Bank of Nova Scotia have hiked residential mortgage rates for the second time in as many weeks, likely sparking another round of increases from other banks at the onset of what is expected to be one of the busiest home-buying seasons in recent memory.

As of today, RBC and Scotia’s five-year closed fixed-rate home loans will carry an interest rate of 6.1 per cent, the highest since November. Those same mortgage products carried a rate of 5.25 per cent a little more than two weeks ago.

The 25 basis-point hike, announced by RBC and Scotia on Tuesday, comes fast on the heals of a 65-basis-point hike by the big banks late last month. It also comes as expectations rise that the Bank of Canada will raise its key interest rate earlier than previously thought.

Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank’s TD Securities unit, said investors are now factoring in a 50-per-cent probability that central bank governor Mark Carney will raise interest rates on June 1. Carney has pledged to keep the central bank’s benchmark rate unchanged through June, “conditional” on the outlook for inflation.

The first round of mortgage rate hikes kicked off on March 29, as RBC, TD Bank and Laurentian Bank announced the cost of their various mortgage offerings would rise between 40 and 60 basis points. RBC was the first to announce on that day as well.

A day later, Scotiabank, Canadian Imperial Bank of Commerce and National Bank of Canada did the same.

The banks say they are raising their rates because their own cost of funding is going up as investors demand higher yields.

Canada‘s real estate market has been booming since the economy emerged from recession last year as consumers take advantage of some of the most favourable mortgage rates in decades.

Homebuyers are facing higher costs on other fronts as well, with more stringent mortgage lending rules set to take effect on April 19 and the looming introduction of the harmonized sales tax in Ontario and British Columbia.

Many homebuyers are expected to try to rush to make their purchases ahead of the changes to keep their costs down.

Canadian mortgage rates almost always move in near unison. But it was more than five hours after RBC announced its move Tuesday before it was matched by Scotiabank. Faced with a similarly busy real estate season in the United Kingdom, banks there are cutting mortgage rates as they fight for market share, according to a report in the Financial Times.

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Banks begin second round of interest raising

John Greenwood And Eric Lam
Province

Royal Bank of Canada and Bank of Nova Scotia have hiked residential-mortgage rates for the second time in as many weeks, likely sparking another round of increases from other banks at the onset of what is expected to be one of the busiest home-buying seasons in recent memory.

As of Wednesday, RBC and Scotia’s five-year closed fixed-rate home loans will carry an interest rate of 6.1 per cent, the highest since November. Those same mortgage products carried a rate of 5.25 per cent a little more than two weeks ago.

The 25 basis-point hike, announced by RBC and Scotia on Tuesday, comes fast on the heals of a 65-basis-point hike by the big banks late last month. It also comes as expectations rise that the Bank of Canada will raise its key interest rate earlier than previously thought.

Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank’s TD Securities unit, said investors are now factoring in a 50-per-cent probability that central bank governor Mark Carney will raise interest rates on June 1. Carney has pledged to keep the central bank’s benchmark rate unchanged through June, “conditional” on the outlook for inflation.

The first round of mortgage-rate hikes kicked off on March 29, as RBC, TD Bank and Laurentian Bank announced the cost of their various mortgage offerings would rise between 40 and 60 basis points. RBC was the first to announce on that day as well.

A day later, Scotiabank, Canadian Imperial Bank of Commerce and National Bank of Canada did the same.

The banks say they are raising their rates because their own cost of funding is going up as investors demand higher yields.

Canada‘s real-estate market has been booming since the economy emerged from recession last year as consumers take advantage of some of the most favourable mortgage rates in decades.

Homebuyers are facing higher costs on other fronts as well, with more stringent mortgage lending rules set to take effect on April 19 and the looming introduction of the harmonized sales tax in Ontario and B.C.

Many homebuyers are expected to try to rush to make their purchases ahead of the changes to keep their costs down.

“Mortgages are tied to the bank’s funding costs, which change from day to day,” said Gillian McArdle, a spokesperson for RBC. “Our long-term funding costs have gone up considerably since mid-December and it is now necessary for us to increase . . . fixed-rate mortgages.”

Canadian mortgage rates almost always move in near unison. But it was more than five hours after RBC announced its move Tuesday before it was matched by Scotiabank.

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Province

The average house price in B.C. climbed 19 per cent to $504,312 in the first quarter of this year from the same period in 2009, the B.C. Real Estate Association said. Residential sales across the province on the Multiple Listing Service system rose 64 per cent to 18,284 units during this period, it said Tuesday.

Association chief economist Cameron Muir said home sales have moderated since the year began as afford-ability declined. “Despite an improving provincial economy, higher mortgage-interest rates and tighter credit conditions for low-equity homebuyers and investors will squeeze some prospective buyers out of the market this spring.”

Sales of homes rose six per cent between March and February on a seasonally adjusted basis. March sales, however, were 20 per cent lower than in December 2009 on a seasonally adjusted basis.

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Derrick Penner
Sun

VANCOUVER – March Real estate sales in British Columbia were 43 per cent higher than the same month last year, when the market was just emerging from the housing downturn, the British Columbia Real Estate Association reported Tuesday.

Sales cleared through the Multiple Listing Service, however, continued to ease off the hot pace they had reached by the end of 2009.

The BCREA recorded 7,110 sales province wide in March, which is higher than the same month a year ago, but association chief economist Cameron Muir said they are six per cent off the pace of sales experienced in December 2009 when seasonal factors are accounted for.

“Home sales have moderated since the beginning of the year,” Muir said in a press release.

“Despite an improving provincial economy, higher mortgage interest rates and tighter credit conditions for low-equity homebuyers and investors will squeeze some prospective buyers out of the market this spring.”

The average price paid for a home in March hit $516,970 in March, up 21 per cent from March of 2009.

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Brian Morton
Sun

New home construction in B.C. has picked up significantly from a year ago, according to a report released Monday by Canada Mortgage and Housing Corp.

The report by Canada’s national housing agency said that in the first quarter of 2010, foundations were poured across the province for 5,337 new homes, more than double the 2,522 in the first quarter of 2009.

“It’s very solid in terms of a year-over-year comparison,” Carol Frketich, CMHC regional economist, B.C., said in an interview. “The strength in new home construction was very much in the single detached type. [But] multiple units are also up in the first quarter.”

She noted that starts in March totalled 1,726, also more than double the 739 recorded in March 2009.

Frketich noted that the economy played a key role in giving developers increased confidence.

“It’s a reflection of a stronger resale market, improving economic conditions and still relatively low interest rates.”

In the first three months of 2010, a total of 2,164 single-detached homes were started compared to just 628 units a year earlier. Multiple-family home starts were also strong in the first quarter, increasing 68 per cent from a year ago and totalling 3,173 new units started.

Single-detached construction rebounded with the most strength in urban B.C. (centres with more than 10,000 people) during the first quarter of this year.

In the Vancouver Census Metropolitan Area (CMA), new home starts totalled 3,198 in the first quarter of 2010, 76 per cent higher than the same period last year.

“We continued to see strength in single detached new home construction in March, particularly in Surrey and Vancouver City,” said Robyn Adamache, CMHC senior market analyst, Vancouver, in a statement.

In the Abbotsford CMA, 44 homes were started in March compared to just six a year ago. For the quarter, 107 new homes were started in Abbotsford compared to 47 for the same period in 2009,

However, in urban B.C. the seasonally adjusted annual rate (SAAR) of housing starts dipped to 22,100 units in March from 26,400 units the previous month. Of that, Frketich said the forecast was lowered because of a drop in the number of multi-unit starts. “It’s a little slower in March, but the trend is still improving compared to last year.”

Nationally, March housing starts edged down to 197,300 units (SAAR) from 200,400 units in February. “The moderation in March housing starts were due to the volatile multiple starts segment. Helping to offset this was an increase in singles starts as well as more activity in rural areas,” said Bob Dugan, chief economist at CMHC.

Although Canadian starts are clipping along at levels not seen since 2008, economists believe it won’t be sustained into the second half of the year.

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Buyers racing to market

Province

New home construction in the Vancouver region soared 76 per cent in the first quarter of this year from the same period in 2010, Canada Mortgage and Housing Corp. says.

Housing starts in the area climbed to 3,198 in the first quarter of 2010 from 1,819 a year earlier, CMHC said Monday.

“We continued to see strength in single detached new home construction in March, particularly in Surrey and Vancouver city, CMHC senior market analyst Robyn Adamache said.

The Abbotsford area saw 44 housing starts in March, up from six a year earlier, CMHC said.

Across urban centres in B.C., foundations were laid for 5,337 new homes in the first quarter of this year, up 111.6 per cent from 2,522 for the same period in 2009.

On a seasonally adjusted basis, however, housing starts for B.C. slipped to 22,100 in March 2010 from 26,400 in February.

Nationally, housing starts dipped slightly in March but are clipping along at levels not seen since 2008, a level unlikely to be sustained into the second half, economists said.

Seasonally adjusted housing starts slipped to 197,300 units in March from a revised annual rate of 200,400 units in February, CMHC said.

The March decline was blamed on a sudden drop in the always-volatile multiple-units segment.

Not since October 2008 has the number of annualized starts surpassed 200,000, added BMO Capital Markets economist Robert Kavcic. February starts were previously reported at 196,700 units.

Taken together, he noted, the recent three months’ data represent an increase in the first quarter of 8.2 per cent, following gains of 15.2 per cent and 22.1 per cent in the previous two quarters.

Put another way, the first quarter’s 8.2 per cent pop represents a 37.3 per cent compound annualized gain, wrote Scotia Capital economists Derek Holt and Karen Cordes.

“Are these levels of activity sustainable?” asked National Bank economist Matthieu Arseneau. “We do not think so.”

Observers agreed the strong pace bodes well for the economy at large — as the cost of home building spreads through the construction, financial, retail and other industries — but is unsustainable.

Pascal Gauthier, economist at TD Financial Group said, “starts have been running above replacement levels for three months, and a fair measure of multiple units under construction are still in the pipeline to be completed this year.”

And the current strength appears to be the result of buyers racing to lock in at low borrowing costs, get ahead of tighter standards for mortgage qualification and beat the implementation of the HST in Ontario and B.C. in July, Kavcic said.

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