The Vancouver real estate market is pretty unforgiving when it comes to the young and lower income buyer. One of the hardest hit by home prices is the millennials, those aged 23 to 38 who are missing out on some of the “givens” generations before them enjoyed. One of the biggest influencers that can keep millennials out of the market is that people are living to ripe old ages, which in turn keeps their homes off the market.
Add to this the trend to age in place, and inventory in cities like Vancouver and Toronto suffer. However, there are quite a few challenges and trends that are keeping millennials from buying a home in Vancouver. Here are eight of the most influential facts affecting millennials and the trends that are changing their idea of homeownership.
1. The Age of First-time Buyers has Risen
Today the average age for a first-time buyer is 36, much higher than generations before. Most homeowners today were just 30 when they bought their homes. In Vancouver, millennials have a double whammy affecting their home buying abilities: It takes them longer to save for a home due to sky-high prices, and wages have not grown much during their years of employment. Hence, they are older than their parents when they can finally afford a home.
2. Parents are Helping with Purchases
According to the BC Notaries Association, about 90 percent of first-time buyers in B.C. borrowed or were given money from their parents so they could qualify for a mortgage. This has a lot to do with the stress test introduced by the federal government to make it more difficult for buyers to qualify for a mortgage. Their hope was to counter national home price inflation as it was posing a threat to the national economy. Why? It was raising the number of Canadians burdened with heavy debt. Because millennials have limited equity due to salary stagnation, their parents are the bank of choice today, at least when it comes to raising money for their down payments.
3. Vancouver Home and Income Gap
According to Statistics Canada, the Vancouver metro region has the unfortunate claim as the highest “value-to-income ratio.” This unpleasant title shows the disparity between average salaries in Vancouver and the cost to buy a home. In Vancouver, property values were nine times greater than the income of owners. Clearly, this is a very challenging trend millennials are facing today.
4. To Move or Not to Move
Many millennials will have to decide whether they stay in Vancouver or move to a more affordable city. If they aren’t willing to give up the urban lifestyle they love, surprisingly Toronto offers a glimmer of hope. The price to income ratio is a third of Vancouver and it is also seeing plenty of job growth. If they aren’t as fussy about their idea of urban life, they can make a cross-country journey to Nova Scotia where the median home price is ridiculously lower at just over a quarter of a million. And they still get to live on the ocean, although it is the Atlantic, not the Pacific.
5. Renting Stifles Saving
While the generations before them had a simple strategy to rent to save for a home, millennials in Vancouver aren’t faring so well when it comes to this plan. Sadly, rent in Vancouver is just as challenging as a mortgage, with an average rise of 10 percent each year. One in five Vancouver renters is spending more than 50 percent of their income on rent, with no relief in sight. This includes follow through on government promises to provide $40 billion in funds towards housing.
Millennials are faced with affordable housing challenges that are keeping them from saving. Even if the money does get doled out from the government, it is a national amount and won’t provide enough to lessen the rent woes of Vancouverites thanks to climbing land values in the area.
6. Multi-Generational Living Saving the Day
According to the Millennial Report, one thing that might be saving millennials from going broke, while also reducing their need to buy a home, is multi-generational living. This trend is finding more and more millennials either staying home with their parents or moving back home. This includes married couples and couples with kids. In some cases, they buy into the family home, and in other cases, they contribute financially.
Either way, they are reducing their cost of living, while supporting their parents as they age. From basement apartments to “laneway” homes, every square inch offers the opportunity to keep this trend alive. In fact, in many cases, it is the aging parents who move to the smaller space leaving room for the next generation or two to begin their lives. It is a win-win for both generations as parents reduce their financial burden, have assistance with living as they age and also avoid downsizing and leaving the home they love.
7. Multi-Purpose Home Ownership
The Millennial report also mentions millennials are starting to look for economy sharing opportunities to afford their homes. This can include renting a room or space in their home or offering their home for rent on platforms such as Airbnb. In fact, the roommate concept is also becoming more popular as people strive to find innovative ways to pay their mortgages. The report notes, “Millennials value real estate as an investment, but the added bonus of sharing their homes works well to address sociability. It also helps them save money, getting them into their ‘forever home’ sooner, and could generate income.”
Instead of dealing with tenants who might not be as respectful of a home, or harder to pin down to pay rent on time, co-owning real estate with another person or persons is becoming a popular choice. Millennials (and seniors for that matter) are looking at family, spouse, friends and even strangers to share the cost of homeownership as well as their living space. This approach is allowing people to get into the real estate market without the burden of providing a down payment or paying mortgage payments alone. It can also make it easier to qualify for a mortgage when more incomes are involved.
People also share maintenance costs making it easier to manage unexpected repairs when they arise. There are risks with this plan as well. “Co-owners should consider hiring a lawyer to draft a formal agreement for them – it will likely not be needed until there is a hiccup in the relationship, but if there is a dispute, the agreement will be vitally important to resolving the dispute,” says Samantha Gale, CEO of the Canadian Mortgage Brokers Association.
While some of these trends are keeping millennials from reaching their goal of homeownership, many more are simply reinventing the route they have to take to get there.
If you would like help finding a strategy for homeownership in Vancouver, speak to our experienced team today.