Eight months of sharply rising interest rates have burdened the finances of recent home buyers, but they did not believe that buying a home was the right decision.
An informal survey of 653 people who bought their first product homes have found several pain points in recent years. Almost one in three said they were feeling financial pain but were coping, just over 10 percent described themselves as struggling and 3.4 percent said they might have to sell. A third are worried or scared about how higher mortgage costs will affect their long-term financial well-being.
Has the young generation of buyers suffered from owning an apartment? Not so much. Only 28.5 percent of respondents described themselves as housing poor, a vaguely defined but familiar term that suggests you’ve bought more housing than you can actually afford. Although home prices are falling, nearly 40 percent of those surveyed said they are fairly confident that buying a home was a smart financial move, and 33 percent are fairly confident.
The survey was launched a few weeks ago in the bi-weekly Carrick on Money email newsletter, which you can subscribe to here. People who bought their first home between 2018 and 2022 were asked to answer a series of questions about how rising mortgage rates have affected their finances and how they feel about real estate.
High inflation has led to repeated interest rate hikes since March. Interest rates on loans and lines of credit have risen, but the impact is most felt on mortgages because the costs of housing are so high.
Three-quarters of those who took part in the survey reduce spending due to mortgage costs. The most frequently mentioned cost cuts are restaurant meals and entertainment, travel and clothing expenses, but saving and investing were also mentioned a lot.
Homeowners with mortgage renewals need to start preparing for the financial hit now
In these figures, the plight of young homeowners is a broader concern. Consumer spending is slowing economic growth at a time when the risk of recession is rising, and low savings are raising questions about how well young people are prepared to weather financial emergencies without taking on more debt and saving for retirement.
Almost 78 percent of those surveyed were from Ontario and British Columbia, and 88 percent lived in urban centers. Almost 46 percent had variable-rate mortgages, 51.4 percent had fixed-rate mortgages, and the rest had either a combined loan or no mortgage at all.
These young buyers of recent years owe a lot. Nearly 19 percent have a mortgage balance of more than $800,000, and another 33 percent owe between $500,000 and $800,000.
This helps explain why payments have gone up so much for people who have renewed or received higher payments on their variable rate mortgages. Of that group, 52 percent said their payments have increased by more than $500 a month, a huge amount of extra cash from child households. The fees for the other 22 percent have increased by $300 to $500.
In 2020 and 2021, parents helped their adult children with a down payment on an apartment. A new facet of parental help has emerged as a result of the large rise in monthly mortgage costs. One in four survey respondents said their parents help them cover these additional costs. The most common types of aid: cash, money to cover mortgage payments, money to pay down mortgage capital, and help with child care.
When asked who was to blame for rising mortgage rates, 45 percent took the refreshingly grown-up view that no one was responsible because higher rates were always a risk. The Bank of Canada was blamed by 22 per cent, the federal government by 18 per cent and lenders by 5.5 per cent for not being more open about the risk of rising interest rates.
The most telling question in the survey may be the one that asks about attitudes to home ownership in 2022. Only 7.7 percent regret the purchase. Almost a quarter love it, 36.4 percent said home ownership is stressful but worth it and the rest philosophically said it is what it is. Stay tuned to this column to see if these attitudes hold up in the difficult months ahead.
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