Largest Cohort of Millennials Changing Canadian Real Estate, Despite Constraints of Affordability and Mortgage Regulation

Largest Cohort of Millennials Changing Canadian Real Estate, Despite Constraints of Affordability and Mortgage Regulation

‘Peak Millennials’ (aged 25 to 30) to create strong wave of demand

National survey shows while the peak millennial dream to own property is very strong, challenges to homeownership vary across the country

The number of 25-30 year olds is set to grow again

According to the Royal LePage Peak Millennial Survey released, high home values in Canada’s largest urban markets and job uncertainty in other regions mean new strategies and different priorities for ‘peak millennials,[1] a term coined to describe the largest cohort of the millennial demographic and the impact of their potential purchasing power[2].

 

With every census metropolitan area but Fredericton and all provinces with the exception of Quebec, New Brunswick and Newfoundland adding to their population of 25-30 year olds over the past 5 years,[3] decisions made by peak millennials will be far reaching.  With peak millennials as a group now reaching their late 20s, the number of people aged 25 to 30 is projected to increase 17 per cent in 2021 compared to 2016.[4]

 

“Whether they choose to buy or rent, peak millennials will inevitably shape the housing market due to their sheer volume,” said Phil Soper, president and CEO, Royal LePage. “We expect demand from this demographic to put additional pressure on entry-level housing and investment properties being used to supplement the limited inventory of purpose-built rental buildings.”

 

Although the desire to own a home is strong among peak millennials, the challenges they face on the path to homeownership are numerous. The cross-Canada survey conducted by Leger found that 87 per cent of Canadians aged 25 to 30 believe homeownership is a good investment. Yet, while 69 per cent hope to own a home in the next five years, 57 per cent of those surveyed believe they will be able to afford one.

 

“Facing challenges their baby-boomer parents never encountered, peak millennials are confronted with significant obstacles that vary depending on where they live,” remarked Soper. “While finding employment in our largest urban markets, Toronto and Vancouver, is relatively easy compared to other areas of Canada, buyers face limited inventory and high home values in these regions. Where prices are more affordable, job markets can be more uncertain.”

Often renting or choosing to live at home can be part of a smart saving strategy for future home buyers. Thirty-five per cent of peak millennials surveyed already own a home, while another 50 per cent are renting and a further 14 per cent are living with their parents.

 

“The pent up demand for housing from millennials is enormous, with only a third of this large demographic currently owning a property and an overwhelming majority desiring to be homeowners,” added Soper.

When looking to purchase a property, 75 per cent of peak millennials surveyed would look to use their personal savings for a down payment, with 37 per cent seeking out alternative means of funding as well, like financial support from their families (25 per cent).

 

Though 61 per cent of peak millennial respondents across Canada would prefer to buy a detached home, only 36 per cent believe that they will realistically be able to find a property within this market segment. Consequently, many within this age range have adjusted their expectations and have become increasingly open to other property types, provided that they are move-in ready. Over half (52 per cent) of those surveyed would look to the suburbs when purchasing a property, especially when it comes time to raise a family (59 per cent), as the supply of new developments and spacious residences are more abundant in these areas. In addition, 61 per cent stated that they would be willing to move to another city or suburb where property is more affordable.

 

“While peak millennials are becoming increasingly inventive in their quest for homeownership, careful attention to urban planning could help to alleviate some of their constraints,” said Soper. “By focusing on vertical living, and developing larger, affordable condominiums in urban markets, supply limitations would ease, providing long-term, appealing solutions to young buyers in search of affordable property.”

 

In addition to high home values, peak millennials also face increasingly stringent mortgage stress test regulations, which push potential buyers to the sidelines, electing to either remain in the rental market to save up enough money for a down payment, or move to more affordable regions.

 

When asked, 64 per cent of peak millennials currently believe that homes in their area are unaffordable, with a significant proportion of respondents in both British Columbia (83 per cent) and Ontario (72 per cent) asserting that prices are simply too high. Of those that do not believe they will be able to own a home in the next five years, 69 per cent stated that they cannot afford a home in their region or the type of home they want, while roughly a quarter (24 per cent) are unable to qualify for a mortgage.

 

“Even in our two affordability-challenged provinces, millennials who are prioritizing homeownership can find affordable alternatives to our two largest housing markets according to our Royal LePage National House Price Composite,” said Soper. “In British Columbia, a home in Langley, Kelowna, or Victoria is approximately half the price of a home in Vancouver. In Ontario, cities such as Ottawa, London, and Hamilton offer an affordable alternative to Toronto.”

 

In total, nearly half (49 per cent) of the peak millennials surveyed believed that the federal government’s new mortgage regulations have impacted the types of property that they can afford, effectively pushing them into highly competitive, lower-priced market segments.

 

When looking for a home, 53 per cent of peak millennial purchasers across Canada are willing to spend up to $350,000, which would typically buy them a 2.5 bedroom, 1.5 bathroom property nationwide, with 1,272 square feet of living space.[5] Yet, with 58 per cent of respondents having a annual household income of less than $69,000, and only 34 per cent currently tracking to have a sufficient down payment of over 20 per cent to qualify for a mortgage in this price range, the actual logistics of homeownership can be quite difficult.

 

British Columbia

In British Columbia, high home values have left many purchasers between the ages of 25 and 30 outside of the market looking in. While 86 per cent of peak millennials studied in the province believe that homeownership is a good investment, 83 per cent stated that housing in their region is unaffordable – the highest rate in all of Canada – and the same proportion believe they will not be able to purchase a home within the next five years.

 

Consequently, when compared to anywhere else in Canada, peak millennials studied within this region tend to be significantly more interested in lower-priced, resilient market segments, with 42 per cent yearning to purchase a condominium or townhome.

 

With a budget of $350,000, purchasers in British Columbia can typically find a 2.5 bedroom, 1.5 bathroom bungalow with 1,187 sq. ft. of living space. However, in Greater Vancouver, this budget will generally net an 879 sq. ft. condominium with 2.0 bedrooms and 1.5 bathrooms.

 

“As home prices continue to rise in what is Canada’s most expensive housing market, affordability within the Greater Vancouver continues to be a matter of contention, particularly among the millennial cohort who are most often first-time buyers,” said Adil Dinani, real estate advisor, Royal LePage West Real Estate Services in Vancouver. “As a result, we are seeing extremely strong demand in the condominium and townhouse segments, as younger purchasers look to at the last remaining touch points of affordability in the Greater Vancouver Market.”