A Rising Down Payment Hurdle Causing More Housing “FOMO”

Nearly three-quarters of first-time buyers in Canada’s largest cities fear they won’t have a sufficient down payment to enter the housing market.

Young purchasers in Toronto are the most concerned (75%, vs. 68% in 2019), followed by those in Vancouver (69%, vs. 58% in 2019) and Montreal (63%, vs. 60% last year). That’s according to a new survey from mortgage insurer Sagen.

Nationally, more than 6 in 10 first-time buyers (62%) fear they won’t have the down payment needed to buy a home.

Fuelling the Trend

Thanks to rocketing home prices, anxiety levels are higher this year compared to last year—in all provinces except Alberta, Manitoba and Saskatchewan.

People’s fears are well-grounded, considering the average price of a home in Canada has risen more than 28% from pre-pandemic levels to $695,565 as of April, according to the latest data from the Canadian Real Estate Association.

That’s a $153,500+ gain since March 2020, or more than $10,000 per month.

Based on the 5% minimum down payment needed by first-time buyers (+10% for any portion of the home value from $500,000 to $999,999), prospective borrowers would need an additional $15,559 down compared to last February.

"The hurdle causing anxiety for first-time homebuyers is saving for a down payment in an environment of rising home prices…,” said Stuart Levings, president and CEO of Sagen. “While some have parents who can step in, many do not and they are struggling to get into the market."

Can’t Always Rely on the Parental Unit

According to the latest stats from Mortgage Professionals Canada, the vast majority of recent first-time buyers (from 2018 to 2021) are relying on their own personal savings for much or all of their down payment (89%), while only 25% can count on assistance from parents or other family members.

Many of those hopeful buyers are counting on their family in another way, however—for room and board. About a quarter of prospective first-time buyers are currently living at home with their parents or relatives, which is about the same as 2019.

Of those, about 15% admit that living at home has delayed their parents’ decision to downsize, while another 15% say it’s their siblings who need to “leave the nest” before their parents can move/downsize.