Home prices are up as much as 50% in just the past year, which is keeping countless young homebuyers from being able to enter the housing market.
Nearly three-quarters (74%) of 18- to 34-year-olds in Ontario surveyed by Right at Home Realty said they feel they may never be able to afford a home in their current city.
Older cohorts aren’t much more optimistic, with 47% of those aged 35 to 54 believing they’ll never be able to own, along with 37% of those aged 55 and older.
That’s in line with new findings from Manulife Bank’s Debt Survey, which found 3 out of 4 non-owners (75%) who want to buy a home can’t afford to.
The biggest hurdle for more than half of today’s home shoppers is trying to keep up with the growing down payments needed as home price continue to rise, a Point2Homes survey found.
“By the time I save up enough for a down payment, the overall costs rise up beyond my reach,” one of the survey’s respondents said. “It’s a constant game of cat and mouse.”
Down payment requirements have increased so much in recent years that it now takes the average buyer 60 months, or five years, to save up for the minimum down payment of 5%. In Toronto and Vancouver, the timeline is even more extreme. (Note, the minimum down payment of 5% applies to homes valued under $500,000, while any portion of a home priced from $500,000 to $1 million requires a 10% down payment on the portion above $500,000, and homes above $1 million require a minimum 20% down payment.)
On PEI alone you can see the large increase in housing prices that doesn't seem to be slowing down. Years ago a one income household could buy a home and live comfortably but now a days with the higher prices and needing 5% down of the purchase price and closing cost is making it hard for young couples to purchase a home with even two incomes. The government has been offering programs to help with the cost by paying the down payment with conditions but not everyone is eligible for that and those that cannot get this type of funding are left leaning on other people to make owning a home a reality.
Many Turning to the ‘Bank of Mom and Dad’
The result is that, for families that have the means, more parents are stepping forward to support their adult children with their home purchase.
Almost half of Gen Z and Millennial buyers—47% and 46%, respectively—are relying on their parents to qualify for a mortgage.
“With the housing market pricing many Canadians out of the market, younger generations are forced to turn to their parents to close the gap,” said Rick Lunny, President and CEO of Manulife Bank. “Although this can be an effective short-term solution, it can actually be exacerbating the problem.”
Roughly a quarter (25%) of home purchases that were made last year involved parents or other family members gifting part of the down payment, according to data from Mortgage Professionals Canada. Another 14% involved loans from parents or other family members. The housing market, especially on PEI, has increased all over Canada and employment and wages have stayed the same making it difficult for young couples or individuals to be able to keep up with the higher cost of living.
As economist Will Dunning said, these figures have risen over the years and are only expected to keep increasing.
“The chief reason to expect a rising trend in support from family includes escalation of house prices, which results in larger required down payments,” Dunning noted. “At the same time, the parents might be more able to provide assistance because of the considerable growth that has occurred in the value of the parental home.”
Currently, around 1 in 20 parents with a mortgage report accessing their home equity to assist an adult child with their home purchase, Manulife’s data shows.
While there are certainly challenges for young buyers wanting to get into the housing market, there are almost always options still available. That’s where prospective buyers thinking about purchasing with the help of a family member can benefit from the expertise of a licensed mortgage broker.