Grant Duarte’s parents were just 25 when they bought their first house, a three-bedroom redbrick with a double garage in Mississauga, Ont. It was 1992 and they paid $192,000.
Their subsequent climb up the property ladder, the same one followed by so many of their generation and previous ones, is both ordinary and extraordinary: they welcomed their first child, then two more. In 2000, they sold the Mississauga house for a profit and bought a bigger redbrick home a bit further west down the Queen Elizabeth Highway in Burlington.
“We outgrew one house and moved to another,” said Carolyn Duarte, now 52. “We were just doing what everyone else did.”
Yet today, that same Burlington house — bought for $260,000 — is worth upwards of $1 million. And Grant, now 22 and finishing a degree in anthropology at McMaster University in Hamilton, cannot imagine owning anything like it, and certainly not by 25.
“Hell no,” he said and then laughed. “How’s that going to happen?”
Every generation, it seems, has a tale of woe about trying to overcome Goliath-like obstacles in making that all-important first home purchase. But Canadian millennials are shouldering a particularly heavy burden by historical standards, analysts say, one brought on by dizzying price increases, but also lagging incomes and tighter regulations.
“The fact is, there’s been a massive transformation in terms of how much more work young people have to do to get so much less,” said Paul Kershaw, a professor at University of British Columbia’s School of Population and Public Health in Vancouver and founder of Generation Squeeze, a non-profit organization that advocates for young adults.
An analysis by Kershaw found that in 1976 — around the time the baby-boom generation was coming of age — the price of an average Canadian home (figures adjusted for inflation) was $213,030 and the median full-time earnings for a 25-to-34-year old were $54,700. That’s a ratio of roughly four to one.
Compare that to 2017, when the average home price was $510,179 and income for the same age group was $49,800, pushing the ratio to 10 to one.
In Ontario, the ratio for 2017 rises to 12 to one, he adds. And in Vancouver, where home prices have taken the steepest climbs, the figure shoots to 14 to one.
“Across the country today, the typical home price is up by hundreds of thousands of dollars while young people’s earnings on an annual basis have gone down by about $5,000,” Kershaw said.
Paying for the house once you are in it, hasn’t got any easier either. Back in 1976, it took five months of full-time work to pay the annual mortgage on an average-priced Canadian home, after saving 20 per cent as a down payment, Kershaw said. In 2017, it took six months nationally (6.5 months in Ontario and eight months in B.C.).
“Even if housing prices aren’t rising as fast this year as the last, the damage has been done,” he said. “We need to pay attention to that gap.”
In an effort to cool booming markets, governments and regulators have introduced a variety of measures, including foreign buyers’ taxes and tougher mortgage qualification rules. In the wake of these changes, and with interest rates now rising, feverish price increases have cooled and sales volumes have slumped, with analysts predicting even further softening to come.
Yet the moves have inadvertently put even more pressure on young people trying to buy a home.
For example, the new mortgage stress testing introduced in January squeezed the budgets of first-time buyers and pushed those who might have purchased more expensive detached homes into more affordable options: the condominiums, townhouses and semi-detached homes that have served as entry points to home ownership for young people, noted Gregory Klump, chief economist at the Canadian Real Estate Association (CREA), earlier this year.
Indeed, while the average price for all types of residential property fell to a little bit more than $495,000 in April, down 11.3 per cent compared to the same month a year ago, apartment units posted the largest price increases, rising 14.7 per cent, followed by townhouses and row units at 6.5 per cent, according to CREA.
As more people sit on the sidelines of the market, rents are also rising, increasing nearly 11 per cent in Toronto in the first quarter of 2018 to an average of $2,206, according to data from market analysis firm Urbanation. That makes saving for a down payment an ever more difficult task.
“The traditional situation of young people working their way up, living with mom and dad or renting until they can save up and buy, in a lot of ways, has been completely altered,” said Jim Clayton, a professor at the Brookfield Centre in Real Estate and Infrastructure at York University in Toronto. “You’ve got to be a lot more disciplined and creative and, let’s face it, there’s a lot more inter-family wealth transfer going on.”
Family assistance helped Jordan Glover, 27, cobble together a down payment of $120,000, though he also used a windfall on marijuana stocks and the savings he built up while working in sales and renting an apartment in Toronto’s High Park area. As both financial contributors to and guarantors of his mortgage, his parents became an intricate part of the buying process, even reviewing listings for every place he considered.
Despite all that help, the buying process was still gruelling. By January, Glover had made eight failed offers on downtown condominiums and attended 12 showings, including one that involved waiting in a line that snaked out the property and down the hall.
“At one point in February, I was ready to give up,” he said. “I didn’t care anymore. It was constant. Off work at six and at a showing by six-thirty. Then you put in an offer and you don’t get it, so the next time you put in an offer over asking and someone comes in with a bully offer that’s way over asking and you’re out again.”
In April, Glover finally landed a one-bedroom condominium for a little less than $600,000. But he doubts he’d ever have pulled it off without his parents.
“That was super helpful,” he said. “It made a huge difference.”
As Glover proves, landing a first home isn’t impossible.
Mortgages can still be had with down payments as low as five per cent, prices are more moderate outside the heated markets of Toronto and Vancouver, and studies suggest young people remain optimistic about their chances.
Millennials were at the fore of an overall increase in homebuying intentions in RBC’s annual homeownership poll, with 50 per cent of those aged between 18 and 34 saying they were very or somewhat likely to purchase within the next couple of years.
Moreover, the current generation of first-time homebuyers isn’t the first to struggle for a foothold in the market. Carolyn Duarte can remember walking into a bank with her mother in the early 1980s when rates briefly rose above above 20 per cent.
“My mom was there to refinance her mortgage and all the talk was this person lost their house, that person lost their house,” she said. “I always tell my kids you never know what will happen in the market. I don’t think it was harder then, but it was hard.”
Yet the challenges posed by the high interest rates of the 1980s pale in comparison to the hurdles the current crop of first-time homebuyers are up against, said David Rosenberg, chief economist and strategist at Toronto-based Gluskin Sheff + Associates Inc.
“I’ve heard the argument that it was tougher then and it just doesn’t hold water,” he said. “We had higher interest rates, sure, but at the same time we had a lot more wage growth. It wasn’t rare in the 1980s to see wages going up eight or nine per cent per year. I think there’s a lot more frustrations for young people today certainly than there was when I was their age 30 years ago.”
Rosenberg estimates it takes nearly eight years of average family earnings to buy a typical home in Toronto, a figure he said is double the historical norm and “basically off the charts.”
Unless Canadians experience a “fairy tale” surge in income that would correct that ratio, prices will have to significantly decline before homes become readily more affordable, he said.
A best-case scenario would see a long softening in prices — Rosenberg expects a total decline of 30 per cent in Toronto — rather than a sharp, abrupt correction. But the latter could occur, he cautions, particularly given record household debt levels and the high proportion of mortgages (47 per cent, according to the Bank of Canada) poised to be refinanced over the next year.
“We can talk all we want about interest rates and foreign investment and housing, but you reach a point where these ratios tend to break,” Rosenberg said. “And I think it’s absolutely necessary for prices to go down because it has created a massive social problem here for the younger generation.”
In the meantime, young people navigating Toronto and Vancouver’s heated condominium markets continue to make their first home purchases amid fierce bidding contests and rising prices.
“What I’m afraid of is that I’m purchasing at the peak,” said Margarita Duque, 25, whose search for a place began in earnest earlier this year. “Everyone says it’s still a good idea, but it’s still scary because it’s the biggest decision of your life so far and it feels rash. You have to make a decision on the spot if you want a place because they go in three to four hours.”
With so much competition and with assistance from family an option for some but not all, the rate of home ownership among young people is on a downward slide. Just one in three Canadians under 35 were homeowners in 2017, compared to one in two in 1976, UBC’s Kershaw said.
“Let’s not over-exaggerate the bank of mom and dad, because not everyone has it,” he said. “Those who are getting help from their parents are enjoying rising prices too which means housing prices are not only growing inequality between generations, they are a primary driver of inequality within generations.”
Despite the stark difference in their circumstances, Grant Duarte’s goals aren’t all that different from those of his parents. He’d like to own a home someday, especially once he has a family, though he doesn’t know when or if a home will be possible.
“My parents say you need to get your name on a piece of property. It’s important. I ask them, ‘Is that a maxim you throw out there because it’s true or is that reality?’”
Grant and his two siblings, aged 19 and 25, are still at home, but his mother, Carolyn, is happy to allow them to live in her house while they build their savings.
She draws the line, however, at covering a down payment.
“No way, we have not been saving for that,” she said. “We didn’t get a house from our parents and I don’t have any plans to that. They’re all smart enough to end up in good jobs and save for themselves. That’s what I’m banking on.”
• Email: firstname.lastname@example.org | Twitter: naomi_powell