Canada’s dramatic rise in home prices over the past year may be easing, but that’s little comfort for hopeful buyers who are shut out of the market.
A full 3 out of 4 Canadians (75%) who want to buy a house simply can’t afford one, according to Manulife Bank’s new Debt Survey.
That’s left many locked out of suitable new housing entirely, while one-third are resorting to tapping their family members to make a purchase.
“With the housing market pricing many Canadians out of the market, younger generations are forced to turn to their parents to close the gap,” Rick Lunny, President and CEO of Manulife Bank, said in a release. “Although this can be an effective short-term solution, it can actually be exacerbating the problem.”
Nearly half (47%) of Generation Z and 46% of Millennials are relying on their folks to qualify for a mortgage.
Rates are based on a home value of $400,000
Implications for Canadians’ Financial Health
Among those who have already purchased a home during the pandemic, they are more likely to note they “owe” their purchase “to their parents,” Manulife reported.
That’s put all kinds of pressure on parents to help fund these down payments. The survey found that about 1 in 20 such parents have had to borrow against their own home equity to help an adult child afford a home. Heaven knows how many are tapping their retirement savings or feeling the stress in other ways.
With so many young buyers stretching both themselves and their parents to get into the housing market, you have to wonder how well prepared they’d be if home prices collapsed or if interest rates exploded higher (neither being our near-term prediction).
Manulife found that more than half (51%) of Canadians with mortgages already worry about making their mortgage payments. And that’s with interest rates near historic lows.
Too many people think the price growth we’ve seen will continue. “Our message is…the kind of price increases we’ve seen recently are not normal,” Bank of Canada chief Tiff Macklem warned a Senate committee on Wednesday. “They will not continue indefinitely…People should be cautious…”
There are already “early signs” of slowing, he said.