Gen Y clients pose challenge for brokers

by |
Millennials may actually have more financial advantages than their parents, despite constant reports to the contrary. Except when it comes to purchasing a home.

“The average house price was 10.4 times the median income of young families in 2011, more than double the ratio of thirty years ago, relative to income,” a recent BMO report states. “Despite double-digit mortgage rates in 1984, young homeowners today must pay more to service a mortgage.”

Much ado has been made about the financial hardships Millenials (those born between 1981 and 2001) will endure over the course of their lives. But the BMO report suggests this isn’t the case; except when it comes to buying a home.

"There is a popular notion that Millennials will become the first generation to do worse than their parents economically," said Sal Guatieri, Senior Economist, BMO Capital Markets. "However, apart from taking on bigger loans to buy pricier homes, young Canadians today enjoy better job prospects, earn more and are wealthier than in the 1980s."

Unsurprisingly, the report also found that many Millenials will face difficulties buying a home in Toronto and Vancouver – where large amounts of debt are needed to fund purchases in these hot markets.

This could be worrisome for mortgage brokers, with the millennial generation expected to bolster the housing industry for years to come.

Still, Millenials are expected to find their financial footing and have more buying power than their parents which, of course, will aid in purchasing a home.

"Having two per cent more buying power doesn't sound like much, but the difference adds up over time," noted Mr. Guatieri. "One caveat is that median income was higher in the 1970s, before the 1980s' recession took a severe toll on workers, so the starting point for our comparison matters."
  • Layth Matthews on 2014-05-21 12:49:06 PM

    I became a mortgage broker because I wanted to be a financier of appreciating assets. I think real estate is still a good investment in some markets, but it's tough to be an advocate in markets skewed by the whims of exogenous demand - and that could be all of Canada for a long time. It's not so obvious that millenials should be keen on home ownership. It's much more of a strategic decision than it used to be. Investing and financing is all about timing. If there are no obvious bargains available, it's better to wait and accumulate - or de-leverage - to position yourself for the next huge opportunity. Sorry, I was just talking to myself, again.

  • Ron Butler on 2014-05-21 2:14:04 PM

    @ Layth ....... you are not talking to yourself. I think the same thing most days. Ex-Pat money changing the whole real estate eco-system in some neighborhoods. Not saying it is unfair but it is not like living in a place where local supply and demand inform the marketplace.

  • Paul Burns on 2014-05-21 7:19:34 PM

    As the proud papa of three millenials in the process of finishing up University I worry about how student loan debt will affect their buying power. My eldest just finished law school, and he should have decent earning power in a few years, but his student loan payment will be in the range of $900 per month. In NB, that's a pretty decent mortgage payment itself. It will be a few years before he is buying a home of his own.

  • Paul Therien - CENTUM on 2014-05-26 12:26:05 PM

    I can remember much the same thing being said about Gen X when it was their time to enter the workforce. Lots of commentary about lack of jobs, high student debt levels, inability to own homes due to compressed wages, etc. We seem to forget that most Gen X kids were graduating in the early 90’s – during a recession. I believe that Millenials are more challenged today than previous generations, but that will change in the coming years. Just as it did for Gen X.

    Boomers will be retiring, albeit for many later than originally anticipated, and that means that there will be a large gap to fill. We have already experienced this Phenomenon in some industries where there was a large number of retirees and not enough talent to fill the gap. As we approach the next decade there will be a significant number of boomers retiring, in fact the largest work force retirement exit in our history – and there are some statistics that show there are more exiting the work force than entering. That means significant opportunity for upward mobility.

    The income to cost of living gap will eventually start to close, but that takes time. We have already started to see a bit of an adjustment with average household income net of tax increasing from $59,000 in 1993 to $79,600 in 2011 (We do not have current stats available to us since the government got rid of the long form census…).

    Millenials will need mortgage advice as much as anyone else, in fact maybe more due to the challenges they are facing with homeownership in the future. It also means that we could potentially see an adjustment in the marketplace, but that forecast has been happening for decades now. My crystal ball is cracked, but if unemployment numbers and interest rates go up, add in lack luster economic growth and high levels of household debt – could there be a market adjustment? Yes. Will it happen? Your guess is as good as mine, but historically there have been three key factors that drive a large market adjustment: Employment, Interest Rates, and surplus stock.

  • Pam Cranella on 2014-05-27 7:34:44 AM

    A great spot for greatness to talk to each other...vanity runs freely here!

  • M. Robertson on 2014-05-27 12:41:22 PM

    @ Pam Cranella - Well, they at least have offered some thoughtful insight into the article. Unlike your comment which is just derogatory to those people that actually take some time in our industry to share their thoughts and expertise.

    It's why these people are leaders, and you are not.

  • Guy Lew on 2014-05-27 12:44:44 PM

    I work mainly with Real Estate Investors, most of my data base are baby boomers. Lately I am seeing Millennials less concerned about the latest smart phone and more concerned about building wealth through investing. I am sure this is a small minority, but I remember at that age I was more concerned about buying my next car and not about wealth building. Now I am working towards doubling their income through Real Estate through rent to own deals that are not subject to looking only for deals and concentrate mainly mainly on cash flow and exit strategy. These client has set goals for owning a bigger home through investing.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions