What Do Young Canadians Want? Home Ownership, But It’s Getting Tougher

First time homeowners

First time homeowners

With Canada’s housing market levelling off after more than a decade of unprecedented growth, lately there’s been a lot of research about what young Canadians think about buying a home. Is it as important to them as it was for their parents, the baby boom generation?

The answer is yes. Several surveys show that members of Generation Y (born between 1980 and 1994) are just as interested in buying a home as their parents were.

However, the housing market in Canada has seen significant changes in the last several years, and 59 per cent of first-time buyers said they wish they had bought their first home five years ago, according to a BMO survey.

TD Canada Trust research says there are three major obstacles facing young first-time buyers today: saving a large enough down payment; dealing with high house prices; and not making enough money to afford monthly mortgage payments.

A Leger Marketing survey conducted for Royal LePage found that 72 per cent of Generation Y respondents agreed with the statement, “I desire to own a property in my lifetime, but I am pessimistic about by ability to own a home because of the current house price affordability.

The survey also found that 45 per cent of young Canadians surveyed said recent changes to mortgage qualification rules will affect their ability to purchase a home. “A shorter amortization is the most responsible approach to home financing; it’s something BMO has been encouraging for years, as it means becoming debt-free sooner,” says Laura Parsons, BMO mortgage expert.

Farhaneh Haque, director, mortgage advice at TD Canada Trust says, “While young people may be anxious to start building equity rather than paying rent, waiting until you have a larger down payment can save you thousands of dollars over the life of your mortgage.”

He says first-time buyers should also consider using the government’s Home Buyer’s Plan, which allows buyers to borrow up to $25,000 from their registered retirement savings plan to help with a down payment.

A Re/Max survey found that four out of 10 purchasers between the ages of 18 and 34 have a down payment of 20 per cent or more.

“Today’s real estate consumer is more experienced and financially prudent than in the past,” says Elton Ash, regional executive vice-president for Re/Max of Western Canada. “Recent global events – in concert with new mortgage finance rules – have fuelled a more conservative mindset that will serve Canadians well moving forward. It seems the lessons of excess are being heeded.”

However, BMO found that 37 per cent of first-time buyers admitted they might be willing to spend more than their budget if they found their dream home.

“It’s essential that Canadians keep their emotions in check when shopping for a home and avoid over-extending themselves as a result of a bidding war or by purchasing a home they cannot realistically afford,” says Parsons. She suggests working with a mortgage expert prior to house-hunting to set your price range.

“For what you are paying in rent, you may be able to own your home, so why not take a mortgage for a test run?” says Haque. “Crunch the numbers with a mortgage specialist and then test whether you can manage the costs. Set aside your expected mortgage payments plus all other home expenses for a few months, less your current rent, and see how you do. Over this time, if you find that you are stretched too thin or run out of money before the end of the month, look for ways to cut back on other expenses and keep saving.”

The BMO survey says 63 per cent of first-timers have made cutbacks to their lifestyle to help save for a home. Twenty-seven per cent are relying on their parents or other family members to help them out.

First-time buyers expect to be mortgage-free in 20 years on average, says BMO. Most will chose a fixed-rate mortgage over a variable-rate mortgage.

All the surveys agree that young Canadians believe home ownership is a sound investment. But the traditional profile of first-time buyers as young, married couples is changing.

Re/Max says singles are becoming a larger share of the first-time market, particularly single women.

In the U.S., a survey by Coldwell Banker says that one in four married couples between the ages of 18 and 34 purchased their first home together before their wedding date, compared to 14 per cent of those ages 45 and older.

Re/Max says the 18-34 cohort represents 37 per cent of people who are planning to buy a home within the next two years.

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