ZOLO Ottawa Real Estate

It’s no secret that the only way many young homebuyers in major cities are able to afford their purchase is with help from their parents.

Just how many? Roughly 40% of parents helped their children (aged 18 to 38) financially with buying a house, says a new report by the Ontario Real Estate Association (OREA).

Of these parents, 71% gave their kids a financial gift, worth an average of $71,000, and 61% supported them with a loan, worth an average of $41,000.

Older cohorts have benefited enormously from rising home prices, which is why many are comfortable taking some equity out of their house to help their children, or giving them an early inheritance.

Plus, they truly believe in the value of homeownership. An overwhelming majority of respondents, 92%, believe they need to do what they can to make sure younger generations have the same opportunity to own a home as older generations.

And before you accuse today’s young homebuyers of being spoiled, remember that a key reason they need so much help is that housing prices have become wildly unaffordable, and are continuing to rise.

“We are in a housing affordability crisis being driven by severe lack of supply, and increased demand, especially around ‘missing middle’ type properties,” said Tim Hudak, CEO of OREA. “Without meaningful action at all levels of government, Ontario’s millennials and young families will be forced to look outside the province for their first home, leading to brain drain and negatively impacting our economic competitiveness.”

Home price and downpayment gifts on the rise

CIBC economist Benjamin Tal reported in 2021 that the average size of a down payment gift is highly correlated with home prices. But over the past five years, the growth in down payment gifts has even outpaced home price inflation, averaging 9.7% annually, which is a full two percentage points faster than growth in home prices.

The average Canadian property price climbed to $748,450 in January, which is 1% higher from December and 21% higher compared to a year ago, according to data from the Canadian Real Estate Association (CREA).

But those numbers don’t even paint the full picture of how bad housing affordability has gotten during the pandemic. Consider that the MLS Home Price Index has surged 46.5% since January 2020, right before the pandemic hit.

Without assistance, many first-time buyers simply aren’t able to come up with the down payment needed for a home in most major metro areas.

Based on today’s average price, the minimum down payment needed for a first-time buyer is just shy of $50,000, plus land transfer taxes in many cases and other closing costs. For many who are trying to save up on their own to reach that hurdle, they are constantly being priced further out of the market as prices continue to rise. It now takes buyers in the country’s 10 largest urban markets an average of six years (74 months) to save up the minimum down payment for their purchase, which is double the time it took in 2000.

There is a desperate scramble for housing now amidst a pervading sense of FOMO (“fear of missing out”). Three-quarters of Ontarians (77%) believe it became more difficult over the past year to buy a residential property where they live, and 59% of respondents say that housing prices will be less affordable over the next five years, according to the OREA findings.

It’s not hard to understand why they think this, given the current tightness on the supply side of the housing equation. In January, the months of inventory measure used by CREA to track the current supply of listings fell to an all-time low of 1.6 months, well below the long-term average of five months.

Unless a huge supply of properties hits the market this spring, it’s possible that property prices will continue to climb, at least until rising interest rates start to temper demand.

Other notable survey findings

  • Ontario homeowners still strongly believe in homeownership, considering it one of the most important decisions they made in their life. Respondents said their home provides economic confidence.
  • Ontarians don’t appear to realize that low supply is the main reason housing prices continue to climb – encouraging the construction of more homes is a low priority.
  • Concern about housing affordability crosses all regions of the province, not just the GTA. This also reflects CREA data that home prices in smaller cities and rural markets throughout the province have jumped significantly.
  • Almost four in 10 homeowners (38%) say they are likely to sell in the next five years. This helps make the case against fixed mortgage terms of longer than five years.
  • Nearly half of homeowners (49%) think their property is worth between $500,000 and $1 million, while 18% believe their home is worth more than $1 million.

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