Wood Frame Low-Rise Condos Are First-Time Homebuyers’ Best Bets
Between exorbitant price points and rising interest rates, first-time homebuyers in Vancouver doubtless feel like they’re in the lurch, but they aren’t bereft of options.
In British Columbia, condominiums of between four and six storeys are built with wood frames, which are more economical than concrete—and in light of the latter’s price increasing considerably, that can make all the difference for new buyers.
“They’re the most affordable offering, and they include great amenities within the buildings,” said Jamie Squires, President of Fifth Avenue Real Estate Marketing. “A lot of the developers in these projects are forward-thinking in their planning and include things like shared working spaces.
“The other thing to note between high-rise and low-rise condominiums is the deposit amount; bank funding for a large tower requires a 20% deposit, of which 10% comes in during the first seven days and the other 10% is after the amendment to disclosure has been filed. With a low-rise [condo] or townhome, you typically only need 10-15% down.”
Affordability Outside of the City Core
However, the catch is a low-rise condo outside of Vancouver is where the prices become affordable for most first-time homebuyers, and Squires advises looking in Langley, Surrey and Abbotsford.
In a rising interest rate environment, first-time homebuyers need to be cognizant of losing purchasing power as the B-20 mortgage stress test’s qualifying rate increases. Squires says the Office of the Superintendent of Financial Institutions typically implements B-20 increases in June, giving first-time purchasers time yet, albeit not much. Right now buyers are being stress tested at either 5.25% or 2% above the contract rate — whichever is greater. Squires can see a 6% stress test on the horizon.
Moreover, the Bank of Canada hiked its overnight interest rate on March 2 for the first time since 2018, and another three increases are anticipated before the end of 2022. Squires recommends forgoing a mortgage preapproval for an actual approval.
“A preapproval only skims over credit but doesn’t do due diligence to fully fund the mortgage, but once they get a real approval, the homebuyer has to purchase and the mortgage has to be funded before it expires, which is about three to six months,” she said.
Daniel Johanis, Owner of Pekoe Mortgages in the Kitchener-Waterloo area, says first-time homebuyers could benefit from practical advice, too, namely that they likely won’t be living in their first home for very long. As an example, he cites the legion of homeowners in his neck of the woods who left the Greater Toronto Area, where housing prices give Vancouver’s a run for their money, within the last few years.
“For anyone entering the market now, it’s a difficult time. For first-time homebuyers, they need to understand that they’re not going to find their forever home right off the bat, and they shouldn’t get so caught up on ticking off all the boxes, whether it’s the size of the place or the geographic location,” Johanis said. “Make sure you’re not going in over your head when it comes to how much you can afford. Be open to many possibilities to get into the market and don’t over-leverage yourself.”