While young Canadians have trouble saving enough money for a down payment, the bank of mom and dad doesn’t play as prominent a role as once thought, according to a new report.
“We found that 52% of [respondents] who made a down payment had part of it funded by a gift inheritance or some other contribution from a family member, but of those 52%, only 17% was a gift of over 30% of the total down payment,” said Brad Henderson, president and CEO of Sotheby’s International Realty Canada. “So 83% of that 52% had a gift that was 30% or less of the total down payment.”
The Sotheby’s International Realty Canada and Mustel Group report also found that 33% of “modern family” Canadians who live in major metropolitan regions have trouble saving for a down payment because of their day-to-day living expenses. In fact, according to the report—Modern Family Home Ownership Trends PART 2: Financing the Canadian Dream—that held true in every region surveyed.
The report also shed light on a question many Canadian families, especially young ones, face: Buy a home or save for retirement? According to the report, 20% of respondents have delayed saving for retirement in order to put money aside for a down payment on a home.
“Owning a home is one of the few tax-efficient purchases someone can make,” said Henderson. “When you buy a home as a principal residence and you sell it, it’s a tax-free event. With a registered savings plan, the money goes in and you get the benefit of tax reduction up front; you get the benefit of money compounding on a tax-free basis all the way through, but you pay tax on the money when it comes out down the road.”
Unsurprisingly, affordability remains problematic in Vancouver and Toronto, Canada’s two most expensive real estate markets, but that isn’t the case in Montreal and Calgary.
“In Montreal, the value of real estate is still quite low compared to Toronto and Vancouver,” said Henderson. “Given that income levels aren’t significantly differently—or not anywhere as significantly different as the value of real estate—it makes Montreal a much more affordable location to buy a house.
“Calgary has the same value of real estate, but the challenge there is the price of oil and what’s going on in the oil and gas sector more generally. There’s less confidence in the desire to buy a home and there are a lot of people still looking for work. They’re not experiencing the kind of percentage increases of homeownership that we’re seeing in Montreal, but it is affordable for those with jobs who feel confident about the future.”