Last week, Canadian homebuyers enjoyed yet another round of mortgage interest rate cuts. That's usually a signal that more first-time buyers will jump into the housing market. But housing affordability has been so good, for so long, that the number of first-time buyer prospects has dwindled. Now, it's move-up buyers who are taking advantage of low rates and keeping the housing market humming.

In the recently released 11th annual housing study by RBC Financial Group, about one-quarter of Canadians said they plan to buy a house within the next two years. That number has been consistent in surveys dating back to 2000, as long as the current housing boom has lasted.

What's different now is who plans to buy a home. Last year, 40 per cent of those intending to buy a home were in the 18 to 25 age group. Now, that's down 13 per cent to 27 per cent of those intending to buy. Those aged 25 to 34 lead those likely to buy, at 42 per cent -- an increase of 3 per cent from last year. The 35 to 44 group rose 7 points to 33 per cent this year, while the 45 to 54 age group stayed steady at 22 per cent. Canadians aged 55 and up formed 12 per cent of those intending to buy, which is up 2 per cent from last year.

The survey says purchase intentions among renters has dropped four points since 2003, but renters are still more likely than homeowners to be purchasing a home in the next two years.

RBC says strong affordability levels are responsible for the 'exceptional performance' of Canada's housing market last year. The RBC housing affordability index, which measures the proportion of pre-tax household income taken up by ownership costs, averaged 31.9 per cent in 2003, close to the all-time low of 31.7 per cent recorded in 2001.

Although house prices keep rising (up 6.3 per cent last year to $187,118 for an average detached bungalow), the rates were low enough to offset the impact on affordability, says the bank.

"With the pool of potential first-time buyers nearing exhaustion in most regions given the strong pace of activity in the past two years, move-up buying activity will take centre stage in 2004, inspired by very low variable financing rates," says RBC. "The changing nature of the potential buyer profile means that overall activity will come off its peak this year."

Canadians living in Alberta are most likely to buy this year, followed by those in B.C., Saskatchewan/Manitoba, Ontario, Quebec, and residents of Atlantic Canada.

The survey also shows that 28 per cent of Canadians plan to make renovations to their homes during the next 12 months. They plan to spend an average of $8,850. Another report issued last week by President's Choice Financial says that most Canadians don't take future renovations into consideration when they are taking out a mortgage for a home purchase. Although 74 per cent of those surveyed have undertaken renovations on their new homes (46 per cent within the first year of ownership), the survey says 64 per cent don't consider the costs of renovations when shopping for a mortgage.

"It's important to plan for the home buying process as well as for major renovations that can increase a home's overall value," says David Boone, senior vice-president of President's Choice Financial. The company says homeowners risk higher renovation costs by not incorporating additional funds into their mortgage ceilings, and encourages them to pre-plan for renovations by borrowing more money up front and amortizing it over the term of the mortgage.

The President's Choice survey says that kitchens are the most popular rooms to renovate, and that almost half of those surveyed believe that improving their kitchen will increase the value of their home.

Published: March 25, 2004

Use of this article without permission is a violation of federal copyright laws.

Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .