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Homeownership. A Dying Dream for Many Millennials

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In 2018, higher rates and the mortgage stress test were supposed to make homes more affordable. Well, that didn’t last long.

Home prices just keep climbing...and climbing…and climbing.

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For a growing number of millennials, homeownership is slipping out of reach.

Three-quarters of all millennials want to own a home, but nearly half of them (46%) think it’s more a fantasy than reality, according to a new survey from KPMG.

Those who are buying are receiving help

For those who have managed to get a foothold in the housing market, 46% needed financial help from their parents to make it happen.

Parental purchase assistance has been a growing trend for years as more expensive homes require bigger down payments. It’s why we may see 5%-down mortgages grow more popular over time.

It now takes millennial buyers an average of 13 years to save for a 20% down payment (the minimum to avoid default-insurance fees), according to some data. In the high-priced markets of Toronto and Vancouver, it takes even longer—an astounding 21 and 29 years, respectively.

In contrast, it took their parents an average of just five years to save up that same 20% down payment in 1976.

"That's eight fewer years that millennials might have for saving more for their retirement," said Martin Joyce, Partner, National Leader, Human & Social Services, KPMG, in a release. "If they do manage to save up and buy a house now and delay retirement savings, our poll finds 65% of millennials fear they won't have enough saved for retirement." (Can you say, “reverse mortgage?”)

Many are having to find other solutions to the high cost of ownership in large urban centres.

A full two-thirds of prospective millennial homebuyers said they’d be willing to move to the suburbs to find a home they can afford, according to a recent TD survey.

Big-city dreams are dying, too. Four years ago, the same survey found 38% of millennials preferred to live in the city compared to just 33% now.

And as we explored in another recent piece, a growing number of millennial homebuyers are looking as far as cottage country for more affordable options. At this pace, we fear millennials are going to have to start trading three-piece bathrooms for outhouses.

The Stress Test Factor

The mortgage stress test introduced by the federal government on January 1, 2018 has become yet another obstacle for first-time buyers, the large majority of whom are millennials.

Borrowers putting down 20% or more must qualify at the greater of the contract rate or the Bank of Canada’s benchmark rate (currently 5.19%). Uninsured mortgages (those with less than 20% down) are stress-tested at the greater of the benchmark rate or the contract rate plus 200 basis points.

Mortgage originations from those between the ages of 18 and 25 in the second quarter were down 13.4% compared to 2018 (vs. 8.9% for all age groups), according to data from TransUnion.

“The new mortgage rules affect this group perhaps the most, as they will typically be starting their careers and have lower incomes relative to older cohorts,” the report notes. “This limits both their ability to qualify under the mortgage stress test rules, as well as the size of mortgages they can obtain. In many of the major Canadian housing markets, many younger consumers have now been effectively priced out of buying.”

That begs the question, where do you live when you can’t buy (assuming your parents have kicked you out)? For most, the answer is: a rental.

And maybe that’s why median rents jumped almost 9% this year.

Millennials…they just can’t catch a break.