Is there hope for first-time buyers post-COVID-19?

Options will be limited for home seekers whose savings have evaporated during the pandemic

Is there hope for first-time buyers post-COVID-19?

COVID-19 ripped a hole in more than just the economy. For Canadians on the verge of buying their first home, the pandemic, and the financial uncertainty it has plunged the country into, has also meant a canyon blooming where their savings used to be.

According to a recent TD Economics report, a large portion of the first-time buyer population, millennials, are expected to lose more jobs during the downturn because of their reliance on the service and sales sectors, two of the hardest hit by the COVID-19 contraction, for income.

“The shock to income comes at a time when many are swimming in debt to a greater extent than the generations that came before them,” the report says. “Economic research shows that entering the job market during an economic downturn has lasting effects on lifetime earnings, with gaps in income relative to luckier cohorts lasting for up to a decade.”

Homeowners, renters and businesses both large and small have received some form of assistance since the COVID-19 outbreak. None of those groups are out of the woods by a long shot, but they are better prepared to get on with their real estate plans now than they would be without government intervention.

First-time buyers, though, particularly if COVID-19 has dented their savings or increased their credit burden, are going to struggle. The mortgage stress test and the rate at which prices were climbing before the outbreak had already pushed them to the market’s outer margins, where they were holding on for dear life, desperately trying to get their down payments in order. What hope is there for them now?

“I wouldn’t say every first-time buyer is in the same boat,” says Streetwise Mortgages’ Dalia Barsoum, “but for those that have lost jobs or have been temporarily laid off and won’t come back to work for a much longer period, definitely they’re going to see the hit in terms of their ability to purchase any time soon.”

Even Barsoum, who is known for her experience in getting complicated real estate deals done, says these buyers, if their savings are gone, don’t have many options besides finding a way to replace them. Their best option may be to ask mom and dad to assist with qualifying and cobbling together a down payment.

“At a later point, we can look at refinancing the property and taking the parents off title. That’s the only fix I can think of to still get them into the housing market while the prices are better,” she says.

Jesse Abrams, CEO and co-founder of Homewise, says first-timers may have more luck if they approach their markets like investors. He feels the stress being put on struggling Airbnb operators could increase the number of condos in the market, providing opportunities for shoppers with their eyes on smaller properties. Pre-construction could be another option, allowing “homebuyers to enter the marketplace three years in advance.”

But investment properties are no cure for buyers whose savings have been decimated, coming as they do with a 20 percent down payment requirement. Barsoum says a better play may be to find a home with a secondary suite, even if it’s currently vacant, that can generate rental income.

“You’re essentially adding income to the application,” she says. “That, in some cases, may actually help them make a move forward with the down payment they have.”

A first-timer could also decide to purchase an investment property in a community well beyond the borders of a major metropolitan area, where prices are lower and putting down 20 percent is a less dispiriting prospect. Abrams says cities on the fringes of areas like the Golden Horseshoe may become more desirable in the future if remote work keeps people at home an extra three days a week.

The rents may not be as high in these communities, but the properties still contain their fair share of long-term value.

“That property is like a forced savings plan, so eventually they can revert back to it, take some money out down the road and buy their primary residence,” says Barsoum.

Regardless of their financial situation, Abrams says many prospective first-time buyers are making the same mistake: taking the gloomy economic news as gospel and not asking for professional help in assessing both their current position and future plans.

“They’re not speaking to a mortgage representative and getting the advice they need to understand what their affordability is at this point and setting a goal so that they’re actually prepared for entering the marketplace two, six, twelve months down the road,” he says.

Barsoum agrees.

“They should definitely not take it for granted that they’ve been pushed out of the market,” she says. “They just have to lower their expectations.”

But how much further can they go?