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Working title for the next phase of the housing market: Revenge of the first-time buyer.

Rookie home buyers have been whip-sawed in recent years. They've been fed a line that renting is disastrous behaviour, and they've been witness to steep price increases that suggest they need to immediately buy a house, any house, before they're priced out of the market. Last month, the federal government piled on with new rules that will result in higher mortgage payments for many first-time buyers.

But first-timers are about to get some leverage. Housing markets in a few cities are cooling, and some forecasters see national prices falling 10 to 25 per cent. Meantime, interest rates are expected to more or less remain at today's fantastically low levels for a while longer.

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Prudent first-time buyers will exploit this. They'll build up their down payments, they'll prepare themselves by researching the costs of owning a house and they'll venture into the market with firm limits on what they're willing to spend. First-timers account for just over one-third of the housing market, which means they have quite a bit of clout. If they were to take a buying hiatus, it could really slow the market down.

The obvious benefit of waiting to buy a home is that you have a chance to save a bigger down payment. Toronto-Dominion Bank has produced an infographic showing how someone buying a $375,000 home could save $19,338 over a five-year term with a down payment of 20 per cent versus the minimum 5 per cent. Your combined payments of principal and interest are lower if you put 20 per cent down, and you avoid having to pay for mortgage default insurance.

Down payments of 20 per cent are out of reach for most first-time home buyers, especially in cities like Vancouver and Toronto. But adding even an extra few thousand dollars in savings can make a difference. Doubling the down payment to 10 per cent from 5 per cent for that $375,000 house would save you about $6,375 in principal and interest.

Mortgage rates today are close to the historic lows reached following the financial crisis. Would you lose out on them if you waited to buy? Three-year fixed rate mortgages did rise a bit this week at some lenders, but the near-term rate forecast from TD suggests the answer is no.

Craig Alexander, the bank's chief economist, said he expects the cost of variable-rate mortgages to rise just half a percentage point in 2013, and he sees five-year mortgages rising by a little less than a full percentage point next year from current levels. "It's a very modest rise in interest rates," he said. "We'd still be very low."

TD's forecast on prices reinforces the argument for first-time buyers to take their time. One of the prime motivators for rookie buyers in the past couple of years has been the fear that price increases would eventually make a house unaffordable. Market conditions across the country differ, but some of the hottest markets are now slowing. Nationally, TD has been forecasting an average decline of 10 to 15 per cent over the next three years. Mr. Alexander calls it a "steady cooling."

Forecasts of more severe declines are out there. For example, the firm Capital Economics has said we have a housing bubble in Canada that will take housing prices down 25 per cent when it bursts over the next couple of years.

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Mr. Alexander said we need a catalyst for housing to fall hard – an interest rate surge or a sharp increase in unemployment. His non-alarmist view is that rates will remain low because inflation is under control, and that economic problems in Europe won't deteriorate to the point where they cause a global recession.

After prices, the biggest constraint on first-time buyers today is the federal government's move to lower the maximum mortgage amortization period to 25 years from 30 years for people with a down payment of less than 20 per cent. Mr. Alexander believes this move will account for five percentage points of the coming decline in house prices, with the rest caused by gradually rising interest rates.

There are financial reasons for slowing down the process of buying a first home, and there are practical reasons. Renting rather than owning makes you better able to move as required to build your career, it frees up money for travel and it insulates you from the home owner's spending trap of buying furniture, landscaping, electronics and such.

Renting is not a waste of money. It's what you sensibly do while waiting for the right time to buy a house. Right now, it makes sense to wait longer.

A first-time home buyer's score sheet

Variable-rate mortgage

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Today's interest rates: 2.9-3.2*%

Projected increase by 2014 year-end: 0.5 of a percentage point

Five-year fixed-rate mortgage

Today's interest rates: 3.09-5.2*%

Projected increase by 2014 year-end: Close to one percentage point

*The low end is fully discounted, the high end is the posted big bank rate. Source: TD Economics,

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