Calgary homebuyers making smaller down payments: study
Majority of borrowers in city going with minimum, mortgage broker says
Calgarians require smaller down payments than previous months to purchase a home despite higher borrowing costs, a new study shows.
Online mortgage broker Nesto recently published data on borrowers in its system, including those from Alberta, showing the median down payment on a home fell to its lowest level since April 2021.
“When the market is really hot, and buyers are in almost an unfair position, down payments were up to close to 20 per cent on average,” says Chase Belair, a principal broker with Nesto.
“When there is more flexibility for buyers to have a more relaxed homebuying experience, down payments tend to be less, and we've seen down payments averaging about 10 per cent for three months in a row now.”
In October, Albertans' median down payments averaged nine per cent of purchase price, based on Nesto data.
Although July marked the peak for down payments at 20 per cent of purchase price, payments generally bounced between 13 and 18 per cent of purchase price over the last several months until recently, Belair adds.
The median down payment was $25,000 in October versus the peak of $72,400 in February.
“All this tells you the majority of borrowers in Alberta are going with the minimum down payment,” he says, noting the data reflects the average of all borrowers.
Contrary to the notion that higher rates require more of a down payment, Belair says the takeaway from the data is buyers are “not maxing out their affordability.”
One contributing factor is median home prices, which were about $400,000 in October, Nesto figures show. That's compared with the peak in May when the median price was $460,000.
Local realtor Tim Jones says the report generally reflects Calgary market conditions, currently driven by seasonal trends and rising borrowing costs.
“Spring buyers were in a frenzy, and the pressure was on to get into the market as soon as possible,” says the broker/owner of Re/max Prime in Calgary.
“That was not ideal, especially for first-time homeowners.”
He adds low inventory has since helped keep resale values stable despite falling demand. Calgary Real Estate Board statistics from late November show new listings down about 23 per cent, while sales were also down about 23 per cent year over year.
Yet the median price of a home was $445,000 — up about one per cent from the same time last year.
Jones points out an additional metric from Nesto may reveal borrowers are adjusting to the new conditions with more considering fixed short-term mortgages.
“Long-term, mortgage rates are predicted to decrease, which is resulting in more people choosing shorter term options,” he says. Nesto's study shows that late last year and early in 2022 almost all mortgages — at least among fixed rate offerings — had five-year terms.
Yet starting in the summer, the share of mortgages with five-year terms fell from 96 per cent to about 82 per cent while three-year terms increased to about 18 per cent up from about three per cent at the start of 2022.
“Most people today who previously wanted a five-year fixed are thinking now might be the worst time to lock in for that long,” Belair adds.
“So they're considering shorter terms while hoping to renew afterward at a lower rate for a five-year term.”