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February 21, 2013

Move-up purchasers set to increase their stake in homeownership in 2013, despite overall trend toward moderation, says RE/MAX

CLICK HERE for the full RE/MAX Move Up Buyers Report 2013

Kelowna, BC (February 21, 2013) -- Against a backdrop of strong equity gains and lower interest rates, move-up buyers are once again set to ramp up their role in major Canadian housing markets, according to a report released today by RE/MAX.

The RE/MAX Move-Up Buyers Report found that activity in traditional move-up price ranges have climbed year-over-year (2012 vs. 2011) in 87 per cent (14) of the 16 markets examined—a trend expected to continue throughout 2013. The only exceptions were Victoria and Vancouver, where softer sales activity was reported. Driving the upward movement has been substantial price appreciation in most major centres. The average Canadian home has escalated 93 per cent over the past decade; individual markets experienced increases ranging from 62 per cent in Saint John (4.96 per cent compounded annually) to 199 per cent in Regina (11.57 per cent compounded annually).
The RE/MAX report notes gains have been more muted over the last five-year period, with most centres hovering at an annual appreciation rate of five per cent. Regina and Winnipeg once again bucked the trend, reporting a 12.7 per cent and 8.39 per cent annual increase respectively, while St. John’s recorded an annual compounded gain of 11.08 per cent over the past four years.

“Canadian confidence in homeownership continues to fuel homebuying activity, particularly in the move-up segment, “says Elton Ash, Regional Executive Vice President, RE/MAX Of Western Canada. “Equity gains have been a primary driver, with return on investment exceptionally strong in the past decade. In fact, the Prairies have seen a substantial upswing in housing values between 2002 and 2012, yet prices remain surprisingly affordable. Strong economic fundamentals helped fuel record price appreciation in markets like Regina, Saskatoon, and Winnipeg after decades of slow but steady growth.”

The time between moves had also decreased, according to the RE/MAX report, with first-time buyers generally prepared to upgrade within four to seven years after their initial purchase.

“With each move, purchasers are accumulating equity, which is then funneled back into the next move,” explains Ash. “Their confidence in homeownership as a sound investment is a factor. Very few financial vehicles provide the security and dual purpose that homeownership affords.”

The case for trading up makes good financial sense. To illustrate, consider a first-time buyer who purchased an average Canadian home for $188,164 in 2002 with a downpayment of 10 per cent. Had the buyer financed the remaining $172,735 at the posted rate of 7.02 per cent over a five-year, fixed rate term amortized over 25 years, the balance owing after 10 years would be $135,619. During that period (2002 to 2012), the home would have appreciated 93 per cent to $363,730 at an annual rate of return of 6.81 per cent (compounded). With the equity of $228,111 applied to the purchaser’s next home, at $500,000, and today’s lower interest rates, the carrying costs would be just slightly higher than the original mortgage payment.

“At the end of their mortgage term, most homeowners find themselves in very good standing,” says Ash. “Even with modest price declines in markets like Vancouver, Calgary, Edmonton and Saint John, trade-up buyers have focused on the opportunities that exist in the market. They’re taking advantage of the lower price point and the more favourable spread while interest rates are at historic lows. It’s all relative.”

Ample supply and buyer’s market conditions have created ideal opportunities in Vancouver, Victoria, Kelowna and Saint John. Meanwhile, tight inventory levels have hampered activity to some extent, especially in markets like Edmonton, Calgary, Regina and Saskatoon, Winnipeg, Toronto proper, and Hamilton-Burlington, where the supply of homes falls short of demand. St. John’s also reported micro seller’s markets in prime move-up neighbourhoods, despite overall buyer’s conditions. Unless new product comes on-stream, continued upward pressure on pricing is expected in the months ahead.

“Given the supply situation in some areas, some homeowners are reluctant to place their property on the market, concerned they may not find the ideal home to trade up to,” says Ash. “Yet, that can intensify an existing supply issue.”

Sales in the move-up segment were up in 2012 over 2011 in the vast majority of markets examined. Even more impressive is the upward trending despite a decrease in overall home sales. Enthusiasm out of the gate in 2013 was particularly strong in Kelowna, Edmonton, Calgary, Winnipeg, Toronto, Hamilton-Burlington, London-St. Thomas, where overall resale homebuying activity was comparatively healthy or posted positive January gains.

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