Young Canadian Home Buyers Face Challenges Entering Today’s Market

Are you a millennial looking to buy your first home? You’re not alone in the Canadian real estate market. The National Association of Realtors reports that one-third of purchasers are millennial home buyers, and a study of summer data by Point2Homes Canada shows that the “typical” Canadian home buyer is a millennial woman.

Meet Joan and Her First Dream Home

This statistically average woman – let’s call her Joan – is most likely searching for a 3- or 4-bedroom single-family detached house with a budget between $300,000 - $400,000. Joan wants to live in her preferred neighbourhood, surrounded by amenities and close to work. In fact, she’s probably even willing to pay more to cut down on her commute time according to a recent TD Bank survey.

The survey by TD Bank also shows that two thirds of millennials are unlikely to compromise and buy a smaller home than they desire. Here’s the problem: the average home price in Canada during the time this data was collected was $500,000. In Toronto, Joan would need around $750,000 for the type of home she wants, and in Vancouver she would need close to $1,000,000. The expectations of millennial home buyers (or first-time buyers)  like Joan seem to be wildly out of step with the reality of the real estate market in most of the country.

What Can Joan Afford to Buy?

Compounding the problems of reaching that first rung on the ladder of home ownership are the new mortgage qualifying rules set out by the federal government that began to take effect on October 17. If Joan has saved 10% of her expected purchase price for a down payment ($40,000), she will need a high ratio mortgage; therefore, her qualifying rate will be 4.64% - the Bank of Canada posted rate – even if her contract rate is eventually much less.

If we look at the top end of her search criteria, Joan would qualify for a mortgage on a $400,000 home with an income of $60,000 at a lower contract rate of 2.49%. However, at the higher qualifying rate Joan can only afford a $340,000 home. (You can also check out our handy comparison chart that shows more examples of the higher qualifying rate.)

Joan would now have to restrict herself to looking at properties in the bottom 25% price range of her initial search, and is even farther from the national average home price.

What Options Does Joan Have?

Joan might choose to stay in the rental market for longer and try to add to her down payment. If she’s fortunate, she might have a relative who is willing to gift her additional funds for the down payment. Joan could also approach her parents to co-sign with her, which would let her qualify for a larger mortgage now but could have implications in the future. We’ll look at some of these scenarios in closer detail in an upcoming post.

If Joan’s situation sounds similar to yours and you’re interested in learning more about your options, contact Auxilium Mortgage to speak with one of our planners. Call Toll-Free 1-855-590-6520 or visit us at 307 Goldstream Avenue during regular business hours, Monday through Friday 8:30 a.m. – 5:00 p.m. Our team can also arrange an appointment evenings or weekends to work with you.

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Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.