Despite chronic housing affordability challenges, Canada’s next generation of homebuyer hopefuls believes that owning real estate remains advantageous as a long-term investment. According to a recent Royal LePage® survey, conducted by Hill & Knowlton, 84 per cent of Canadians belonging to the adult generation Z and young millennial cohort – those aged 18 to 38 or born between 1986 and 2006, and referred to in this release as the next generation – believe that home ownership is a worthwhile investment.
Among respondents who do not currently own a primary residence, three quarters (74%) of those in the next generation of homebuyers say that owning a home is a priority for them and a milestone they hope to achieve in their lifetime. Young buyers understand home ownership is expensive. Just over half (54%) of respondents believe that home ownership is an achievable goal. Twenty-six per cent are unsure and 20 per cent do not believe it is achievable for them at all.
“It is not surprising that young buyer hopefuls see immense benefits in home ownership,” said Phil Soper, president and CEO of Royal LePage. “What is both surprising and promising in these findings is the practical and purposeful manner in which these people are tackling affordability barriers. They are well educated on the state of the real estate market and the wide variety of government programs put in place to assist young families find homes. They are hyper-focused on saving for a down payment, which is often the biggest hurdle buyers face. And, they are open to creative solutions, such as shared ownership with friends and family, or buying a property with the express intention of renting a portion of the home to a tenant.”
For many young Canadians, the aspiration to own real estate is rooted in the desire for long-term housing security. Approximately three quarters (73%) of the next generation of homebuyers who consider home ownership a priority say they desire a permanent place to live that is their own, while 57 per cent say that owning a home provides stability. Forty-five per cent say that renting is restrictive due to tenant-landlord policies, and 32 per cent say home ownership is a key part of their retirement plan. Respondents were able to select more than one answer to this question.
Young Canadians confident in their financial future
Among young Canadians who do not currently own a home, 75 per cent say they are planning to purchase a property as a primary residence in their lifetime.
“The youngest cohort of homebuyers in Canada have no shortage of barriers on their path to ownership. Though the cost of borrowing has begun to come down, chronic supply shortages have kept housing prices from dropping, even as demand softened under the weight of high interest rates,” said Soper. “Despite these hurdles, the next generation of homebuyers remains committed to their pursuit of owning real estate, and are remarkably optimistic that they can make their dream a reality.”
Fifty-eight per cent of respondents who say they don’t believe in or are unsure about their ability to own a home say that their household will not earn enough income to support the monthly costs of home ownership. Fifty-two per cent say they do not have a large enough down payment saved up, and probably never will. Respondents were able to select more than one answer to this question.
Of those who say they believe home ownership is achievable, when asked why, 45 per cent of respondents say that they are saving diligently and feel confident that they will have enough savings in the near future to make a home purchase. Thirty-one per cent of respondents say they are on a career trajectory that will earn them a high income and therefore provide them with enough savings to buy a home, while 26 per cent say that they and their spouse have a high enough combined household income to afford a future home purchase. Respondents were able to select more than one answer to this question.
Young buyer hopefuls making sacrifices to reach home ownership goals
Forty per cent of respondents who are planning to purchase a home say that their timeline to buy a property is within the next five to 10 years, while 25 per cent say they are planning to purchase a home more than 10 years from now. Buoyed by the prospect of lower borrowing costs, nearly one in five respondents (18%) say they plan to purchase a home within the next three years, and another 13 per cent plan to buy in three to five years.
To reach their goal of home ownership, almost half (47%) of those planning to purchase say they are regularly saving a portion of their earnings for a down payment. Forty-two per cent say they are diligently paying their loans and bills to ensure a good credit rating, and 34 per cent say they are reducing their discretionary spending in an effort to save more. Thirty per cent are living with family and saving for a down payment, paying little to no rent. Respondents were able to select more than one answer to this question.
To increase their chances of being able to afford a home, 45 per cent of respondents who are planning to purchase say they would consider buying a property with the potential for rental income to offset their mortgage costs, and 31 per cent would consider a rent-to-own program, where the occupant leases the property and a portion of the monthly payments is put towards a future down payment on the unit. Respondents were able to select more than one answer to this question.
While parental involvement in first-time home purchases has become increasingly common in Canada, not all young buyers will be withdrawing from the bank of mom and dad. Nearly half (47%) of respondents say they will not receive any financial assistance from family members towards their home purchase. Meanwhile, 32 per cent say they will receive some form of financial support toward the purchase of their first home.
High home prices contributing to delayed achievement of major milestones
When preparing to buy a home, it is common to ease off on discretionary spending in order to maximize savings. Today, high real estate prices are prompting young people to take more aggressive saving measures in their pursuit of home ownership, such as delaying or foregoing major life milestones.
Twenty-seven per cent of young buyer hopefuls say they have delayed or eliminated travelling in order to save for the purchase of a home, while 21 per cent have delayed, or decided not to make, smaller but meaningful purchases, such as buying a car. Twenty-one per cent of respondents have delayed moving out of their parents’ homes; 17 per cent have delayed or eliminated living on their own; 14 per cent have delayed or eliminated starting a family; and 11 per cent have delayed or eliminated saving for their retirement.
“In pursuit of home ownership, many young people are not only pausing small daily indulgences but also making compromises that impact their long-term financial stability. This includes sacrifices like delaying education and retirement savings, and putting off other major investments,” noted Soper. “If policy makers needed yet another example of the impact of our nation’s chronic housing supply crisis on the financial security and well-being of young people, this is it.”
With the aggregate price of a home in Canada sitting at $824,300 as of the second quarter of 2024, and fixed-rate mortgage rates hovering around five per cent, saving a large enough down payment is taking longer today than it did for past generations. This is causing the average age of first-time homebuyers in Canada to go up, as evidenced in a survey by Sagen™, conducted by Environics Research with a series of questions for Royal LePage, which found that the largest percentage of first-time buyers is now over the age of 34.
Policy aimed at increasing affordability for first-time buyers
Financial institutions in Canada will now be allowed to offer 30-year amortizations for insured mortgages to first-time buyers of new construction homes. Previously, the maximum amortization period was 25 years. The newly available initiative by the federal government aims to increase affordability for first-time homebuyers, reducing monthly carrying costs by spreading out the debt over an additional five years.
“We know that young Canadians are eager to transition from renting to owning, and most remain hopeful they will. Government policies that make lending practices more favourable for the next generation of homebuyers will help young families achieve their real estate dreams, especially those in the country’s most expensive markets,” added Soper. “We hope to see these initiatives expanded to include resale homes as well.”
Royal LePage 2024 Next Generation Survey – Data Chart: rlp.ca/2024-Next-Generation-Survey-Chart
