“Condo fees are escalating, and with the government’s new amortization limits and concerns about interest rates increasing, first time buyers are encountering greater hurdles to condo ownership,” said Michael Pezzack, a broker with Buyingblock.com, a web-based real estate and mortgage hub for Toronto first-time homebuyers. “That means less business for us.”
Condo sales were down 21.3% year-over-year last month in the unsinkable Vancouver market, even as the number of detached houses purchased climbed 2.3%. Another key market condo market, Toronto, saw new condo sales slip just under 5% in the first quarter of 2011 compared to the first three months of 2010, according to the latest data. The number of pre-existing units changing hands dropped nearly 10% over the same period.
The slippage runs counter to what many industry players had predicted following the government’s move on March 18 to tighten mortgage rules in order to discourage Canadians from taking on more debt. Then, many brokers suggested the decision to drop the maximum amortization to 30 years would increase the number of homebuyers turning to the condo market, unable to qualify for pricier single-family houses.
While lowering that ceiling has fueled interest in the condo market, a 4%-to-5% rise in condo fees over the last two years coupled with fears about a pending interest rate hike have kept many potential buyers from making a commitment, Pezzack told MortgageBrokerNews.ca. Here, again, it may be a question of affordability, with lenders using 50% of the condo fee when calculating debt-service ratios. Even a modest rise can block urban buyers from gaining a foothold in more desirable neighborhoods.
The result is some first-time buyers are simply deciding to wait it out, rather than further scale back their expectation, said Ranjit Dhillon, principal broker at Centum Mortgage Smart Inc., in Etobicoke.
“When the banks stopped giving 35 mortgages that was the time when people started calling the brokers,” he told MortgageBrokerNews.ca. “But that doesn’t mean that they are buying the condos now.
Dhillon and others point to buyer concerns that there may now be an oversupply of units in key urban centres – with the inevitable price adjustment soon to follow. “Many prefer to wait and see,” he said.
His analysis comes on the heels of a new poll suggesting two-thirds of young urban Canadians who recently bought or intend to buy a condo would prefer a house. The 2011 TD Canada Trust Condo Poll also backs up Pezzack’s suspicions about condo fees.
About 95% of respondents list those fees, which cover amenities and building maintenance, as the most important feature to look for in a condo. Four-in-five also said they’d be unwilling to pay more than $400 a month.
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