Download THE BIG LEAP

Residential Lending Solutions
JANUARY
2016 SPECIAL
FEATURE
THE BIG LEAP:
Renters and the mortgage market
There are some 14 million households in Canada; of the some 4
million Canadian householders who rent, one can safely wager a
significant proportion of those renters have “buy a home” on their
list of resolutions for the coming year. Problem is, the most recent
Canadian government statistics are from 2011–barely three years
out from the biggest economic downturn in a century–and they’re
not drawn from a census, but rather a national survey.
Pretty feeble stuff, really. Good news is that the new government in Ottawa is re-launching the long form census
but for now the really juicy mortgage/buyer insight statistics are south of the border.
http://news.nationalpost.com/full-comment/national-post-view-good-on-justin-trudeau-for-bringing-back-the-long-form-census
By way of comparison to Canada’s data shortfall,
the US National Association of Realtors recently
released its inaugural “Housing Opportunities
and Market Experience” report, based on
rolling phone surveys that tracked nearly
10,000 would-be homeowners from March
to December 2015.
83
%
of all renters
WOULD LIKE TO
OWN A HOME
It’s a solid intelligence report, to be
published quarterly from here on in, its
questions structured to gauge American reactions
“toward homeownership, mortgages, the economy
and whether it’s a good time to buy or sell a home.” The
unsurprising result is that a vast majority of all renters (83%)
said indeed, they’d like to own a home. Among respondents
ages 34 and younger, the share was 94%.
The NAR’s chief economist, Lawrence Yun, made an astute
observation about the culture and mindset of renters in
the US just now: “Despite entering the workforce during or
immediately after the worst of the financial and housing
crisis, the desire to become a homeowner appears to be a
personal goal for a convincing majority of young renters,”
Yun observed. “Furthermore, there appears to be sizeable,
pent-up demand for buying that currently remains untapped
because of a variety of economic and personal reasons
impacting many households.”
But then things get more nuanced than Canadian
statistics – and useful for thinking about how
you’ll design your own marketing outreach to
potential clients. Why?
Because the cultural and psychological
triggers which drive client behaviours aren’t
easily captured from hard transactional
statistics. Yet these are how and why potential
clients think and act the way they do. And
the NAR survey asks some great questions, well
beyond the core “do you want to buy?” survey asks.
$
53%
19%
11%
they aren’t able to afford a home
feel they need the flexibility
allowed by a rental
don’t like the idea of being
responsible for owning a home
u FCT.ca
THE BIG LEAP
1
LIFESTYLE CHANGE
The NAR report suggests the real positive
driver for homeownership isn’t financial: it’s
lifestyle change –a marriage, a child, a new
job that opens up financial possibilities.
Cost was the main reason that sidelined renters who want
to buy a home, with 53% saying they aren’t able to afford a
home when asked. 19% said they feel they need the flexibility
allowed by a rental. The inference here? Social mobility and
job relocations are key triggers for those under 34. In fact, 11%
said they don't like the idea of being responsible for owning a
home, period.
Fair enough, but is homeownership still a deep aspirational
drive for those aged 34 and under? “A combination of factors
such as rising rents and home prices, limited supply, repaying
student debt, and getting married and having children later in
life has more to do with the currently underperforming share
of first-time (US) buyers than the idea that buying a home is
not as desirable as it used to be,” Yun continues.
It’s big emotional changes. (Yes, death, separation, divorce
and change in job status all have a role here; those questions
weren’t asked.)
Compare and contrast this with what’s perhaps the NAR’s
single most telling statistic: some 10% of US renters making
between $35K and $50K per year and who want to be
homeowners were turned down for mortgage financing in
2015. (If there’s a Canadian entity tracking this key insight
stat–the percentage of overall mortgage applicants turned
down by lenders, by income cohort–and publishing it, please
tweet the link to @FCT_Canada. Thanks.)
One fascinating stat: 76% of those surveyed said they don’t
believe the US economy is improving–yet they want to buy a
home in the future. Yun again: “The promising stretch of job
creation in several parts of the country in recent years has
the housing market in 2015 on track for its best year of sales
since the downturn,” he noted. “However, that only half of
surveyed households believe the economy is improving can
be attributed to the fact that some areas have been slow to
recover and wages have yet to grow in a meaningful way for
far too many families.”
The NAR also debuted a cluster of stats called the Personal
Financial Outlook Index, also captured March-December, 2015.
These questions addressed survey respondents’ beliefs
about their future earnings. Not unlike available Canadian
data, NAR’s survey indicated renters, younger households,
and respondents living in urban areas expressed the most
optimism about the possibility for their finances to improve in
the first six months of 2016.
Optimism alone won’t cut it, of course. There’s measurable
and very real anxiety amongst US renters surveyed that
they’re being priced out of the market, even if they live in a
less economically advantaged neighbourhood, where prices
are less than the national average.
That’s a warning light right there: the US market is polarizing
along the fault lines of earnings and social mobility–and
perceptions are that that polarization is accelerating.
Factor in inflation adjusted incomes since 1980 and the picture
gets fuzzier, because jobs for recent graduates are paying a
fraction in buying power of what their parents earned at the
same time in their working lives. For more see
http://www.pewresearch.org/fact-tank/2014/10/09/formost-workers-real-wages-have-barely-budged-for-decades.
10% of US renters
making between $35K and
$50K per year and who
want to be homeowners
were turned down for
mortgage financing
in 2015.
u FCT.ca
THE BIG LEAP
2
Some 57% of those surveyed by Pew said their household
simply wasn’t keeping up with the cost of living. The Canadian
situation isn’t nearly so dire, for two reasons: Canada is more
socially mobile economically than the US and ballooning US
healthcare costs are driving down US net disposable incomes
for renters and homeowners alike. This is very good long-term
news indeed for the Canadian mortgage market.
Frasier Institute report
According to the 2015 Frasier Institute report on social
mobility, the US and UK both outspend Canada per
capita on education but income gaps are widening
in both countries; in comparison, the most recent
Canadian numbers suggest that 40% Canadians in the
lowest 20% income bracket in 2009 rose to the top 40%
income cohort in five short years.
More insight for 2016 from the Frasier report:
Remarkably, two of every five Canadians in the
bottom income group in 1990 ended up in the top 40 per
cent of income earners by 2009.
These findings are consistent with other research based on
Statistics Canada data. And a growing body of research shows
that Canadian families are financially mobile over generations.
Studies point to a surprisingly high level of “intergenerational
mobility”–the finding that a Canadian child’s future economic
success is not strongly linked to the financial position of his
parents. Sure, parents can influence their children’s economic
trajectory, but there are no guarantees.
Miles Corak, an economics professor at the University
of Ottawa and former Statistics Canada researcher, is
a pioneer in the area of measuring intergenerational
mobility. His research shows that Canada is one of the
most socially mobile societies in the developed world.
Not bad news at all, especially when immigrants–the social
mobility proof par excellence–are so much in the Canadian
mindset these days.
So here’s EXPERTease’s New Year’s resolution on your behalf:
find better and more telling Canadian data and share that data
in the context of the mortgage market, the psychology of the
market, and the deep demographic and cultural drivers behind
that data. p
u FCT.ca
THE BIG LEAP Services by First Canadian Title Company Limited. This material is intended to provide general information only and is in no way intended to make any representation or professional advice to you with
respect to the information presented.
JANUARY
2016 SPECIAL
FEATURE
3
#1578E 02-16 v2