Bank of Mom and Dad Helps First-Time Buyers Drive Market
Wednesday Mar 08th, 2017
Despite rising price houses across Canada and much concern about affordability in hot Ontario and British Columbia markets, young people are still buying homes. The Toronto Real Estate Board reports that just over half of the buyers in the Greater Toronto Area in 2016 were first-timers. The board predicts that percentage will rise this year, even though the price for an average property rose by more than 17 per cent last year.
A new global survey by HSBC says 82 per cent of Canadian millennials expect to buy their first home within the next five years.
"This study challenges the myth that the home ownership dream is dead for millennials -- be it in Canada or around the world," says Larry Tomei, executive vice president at HSBC Canada. "In fact, more than three in 10 Canadian millennials already own their home."
The HSBC survey found that 37 per cent of millennials homeowners in Canada got financial help from their family -- "the Bank of Mom and Dad" -- to fund their purchase. Another 21 per cent moved back in with their parents so they could save money for a down payment. Some also admitted that they needed help from family after buying a home and exceeding their budget.
Several organizations have recently tried to quantify how much first-time buyers are counting on family to help out with their first home purchase. A report by ratehub.ca says that 44 per cent of millennial homeowners had financial help from family.
"Millennials get all the attention when it comes to saving up for a down payment on a first home, but our research reveals generation Xers may have the most to complain about," says Ratehub.ca's Jordan Lavin, referencing the company's 2016 Digital Money Trends Report. "Canadians in the 35-54 cohort were most likely to have put down only five per cent on their first home. Thirty-five per cent of generation Xers made the minimum down payment, compared to just 18 per cent of millennials.
"When it comes to surpassing the magical 20 per cent mark, after which CMHC insurance goes away and qualification becomes easier, generation Xers also scored last with less than one-third making a standard down payment on their first home. That could be because the Bank of Mom and Dad is favouring the younger generation. Millennials are 47 per cent more likely than generation Xers to have help from family when buying a first home."
However, Mortgage Professionals Canada's Annual State of the Residential Mortgage Market in Canadahas a different take.
"The data indicates that there is truth to the suggestion that parents are providing more help, but it also shows that this help is less significant than may be imagined," says report author Will Dunning. In the most recent survey, 15 per cent of first-timers reported receiving a gift from parents or family, while another three per cent received a loan from family to help with the down payment. The total of 18 per cent is not much more than the long-term average of 14 per cent for family gifts and loans, says Dunning.
"Even at this recently elevated share, we cannot say that this source of funds has become an important driver of home buying, contrary to some often-heard opinions," he says.
Dunning's report concludes that rising house prices in Canada mean that it now takes about twice as long to save for a down payment as it did 15 years ago.
"Down payments by first-time buyers have been consistent over a long period of time, at about 20 per cent of purchase prices," he says. "Given the greatly increased burden of down payments relative to incomes, that stability is surprising. It implies that it is now taking longer for first-time buyers to get ready to buy than it did in the past."
The HSBC report says 34 per cent of millennials in Canada already own a home (compared to the global average of 40 per cent). But it says of non-owners who intend to buy a home within the next two years, 27 per cent don't have an overall budget in mind and another 53 per cent say they only have an approximate budget.
Forty-two per cent of millennials in Canada who purchased a home during the last two years overspent their budget, says HSBC.
"Despite a strong desire to take the homeownership journey, the findings also suggest that Canadian millennials face some significant barriers, with more than two-thirds saying they haven't saved enough for a deposit nor do they have a firm budget in mind," says Tomei. "The reality is, it's a challenge -- and so I can't stress enough the importance of having a good plan that includes getting the right financial services advice and support before and after you buy."
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