It’s harder than ever to become a homeowner
A report from CIBC Economics late last year shows leaning on their parents is exactly what most young Canadians are doing these days. Just short of one third of first-time buyers received money from their folks, at an average of $82,000, in order to become homeowners.
Chris Karram, a managing partner at SafeBridge Private Wealth in Toronto, says there aren’t many options available if your parents can’t help you with a down payment.
“There are so many things at work here that make it a challenge for young people today,” says Karram.
Analysis from Statistics Canada shows that millennials in particular are struggling to build wealth and are facing different money challenges than previous generations. Although this cohort is still finding ways to enter the housing market, they’re also incurring more debt to achieve that milestone.
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The issue has a ripple effect
This isn’t just an urban issue either. Phil Soper, president of Royal LePage in Toronto, says affordability is a concern across the country — even in historically affordable regions.
Soper recently gave a talk in Moncton, N.B. When he was done, an older woman from the audience approached him with her concerns that her children would never be able to afford to buy a home in this market.
“She was visibly upset,” says Soper, who agreed that through the pandemic, the market has experienced highs he’s never seen before.
But, he added, young people have always managed to buy homes through wild market conditions.
“My point was … if it's a priority for a young family, they find a way.”
How? He says moving further out from the city centre, and opting for smaller homes like townhouses or condos instead of single-family detached houses. There’s also the option of picking older homes that need work.
Ricardo Tranjan, the senior researcher for the Ontario office of the Canadian Centre for Policy Alternatives (CCPA), would remind homeowners these options also have trade-offs. When someone opts to buy a home far from their social life or office, Tranjan says they have to keep in mind the impact it will have on their work-life balance.
“That has an economic cost in terms of the number of hours people are spending at work, the number of hours people are spending with their families and the level of satisfaction or [their] dedication to their job,” says Tranjan.
Incredibly high home prices also have long-term effects on the percentage of the population that ends up shut out of the housing market, says Tranjan. Their ability to build generational wealth is limited — and eventually, it widens the gap between the haves and the have nots, particularly when looking at racialized or new Canadian families.
“Immigrants have been traditionally able to — through work — acquire enough money to put that down payment, and that might not be the case moving forward,” says Tranjan.
Tranjan adds that the same issue applies to families from rural areas, working class people, earners with disabilities and households led by women.
There are alternative options for the creative
Soper anticipates the market will see a correction — and a report from RBC Economics shows sales have already softened in Canada’s four largest markets since the Bank of Canada raised its key lending rate again in April.
By the end of the year or early next, Soper predicts prices will soften enough to provide young homebuyers with an opportunity to buy property.
“I guess the message is, ‘This too shall pass,’ and yes, people do find a way to get into homeownership, regardless of interest rates or the apparent unaffordability of housing,” says Soper.
Karram says to break into the market, some young people choose to buy a home or condo that they rent out, while living at home or in a more affordable apartment for the time being. Others buy homes with rental units built in to help bring in some extra income.
Another option both Karram and Soper have noted is families or friends pooling their money to buy a home together. Obviously this isn’t an option for everyone — but Soper says as the market becomes more challenging to enter, people continue to impress him with the creative solutions they find.
However, he stresses the importance of remembering that the first priority when you buy a home is that it should be somewhere you live. Unless you’re a professional house flipper, you shouldn’t be worrying about whether your investment will pay off right away.
“They’re not equities that you need to be liquid,” says Soper. “In general, we’re talking about long-term investments where you shouldn’t expect to be trading very often.”
And beyond that, owning a home isn’t the only way to build wealth anymore — there are more investing opportunities open to young people than ever before, including tools like robo advisors and tax-free savings accounts (TFSAs).
“Real estate needs to be reconsidered,” says Karram. “It's not the be-all and end-all. There are lots of other vehicles that give us the same or better tax benefits, that give us slow and steady growth. But that maybe just isn't as sexy as the idea of owning real estate.”
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