When it comes to renting versus owning a home in a city like Toronto or Calgary, are Millennials really opting out of home ownership, or is this a classic case of affordability?
Home ownership among Millennials seems to be down compared to previous generations. Some have attributed this trend to this cohort’s resistance to owning big-ticket items versus experience-driven purchases. Others determine that the cause is affordability.
So what are we to make of a recent article claiming that many young Calgarians choose renting versus owning, despite having the cash to enter the property ladder?
We asked brokers from Calgary and Toronto for their observations based on market activity. Not surprisingly, affordability (or the lack thereof) seems to be the main driver for Millennials opting to rent instead of buy.
Lowell Martens, Broker of Record, RE/MAX Real Estate Mountain View in Calgary says Millennials value the idea of home ownership. “Most appear to want to buy a home but due to lack of funds, some may have no choice but to wait…Their long-term goal is to own some type of home in the future.”
Martens adds, “I feel in cities like Vancouver, a Millennial has no choice but to rent just due to cost.”
So, what about Toronto – Canada’s second priciest property market?
“Young people are not opting to rent in Toronto. They only rent when they cannot buy,” says Jamie Johnston, Broker of Record/Owner, RE/MAX Condos Plus Corp. in Toronto.
Indeed, according to the RE/MAX 2018 Housing Market Outlook, the intent is certainly there. Seventy-eight per cent of Albertans and 68 per cent of Ontarians are homeowners. This is higher than the national average of 66 per cent. Furthermore, while only 45 per cent of Canadian Millennials currently own homes, 72 per cent of Millennials are planning to buy in the next five years.
- From a cash-flow perspective, renting may appear cheaper in the short term. However, the reality is that approximately 50 per cent of a mortgage payment goes to repay principal – a forced savings. Renters may not be able to save the amount that buyers do.
- The gains in value from a principal residence are tax-free, so buying is the better choice once you are able to afford it.
- Yet, a down payment and mortgage can crimp a lifestyle, so renting, at first glance, can seem like the best of both worlds.
- Often, the biggest purchasing obstacle for Millennials is the down payment. Many Millennials make a good income but haven’t saved enough for the initial down payment. The Bank of Mom and Dad can be a lifeline.
- Condos are a popular choice for a first home because they are often more affordable and they suit many Millennials’ lifestyles.
- Parents have a big influence in terms of instilling the value of real estate, and this often drives Millennials’ desire to own.
Millennials in every city share common challenges and aspirations when it comes to real estate. They want that elusive home someday soon – even if that means relying on the Bank of Mom and Dad, or renting for a couple of years before they have the chance to purchase a home.
RELATED READING: Is the new mortgage stress test stressing you out? First, calm down. Then, read this.