Nobody is shocked anymore by the proclamations of how hard it is for a larger and larger number of millennial would-be home buyers who are finding it hard to buy a home, particularly in Canada’s two hottest markets.
Now, a recent study by University of British Columbia associate professor Paul Kershaw has revealed that a prospective buyer in the 25- to 34-year-old age bracket will need, on average, 12 years to save up a 20% down payment. Worse: it will take these millennials much longer to save that kind of down payment if they want to buy in Vancouver or Toronto.
According to Kershaw’s research, buyers in the Greater Toronto Area will need 15 years to save for a 20% down payment on an average priced detached home, while those in Vancouver would have to work and save for 23 years!
Contrast this to how it was 20 or even 40 years ago. In 1974, a typical home buyer worked for five years before having enough for a 20% down payment on an average priced single detached home in Canada.
According to Kershaw, the reasons for the significant increase in how long it takes to save a 20% down payment for a home purchase are: the current weakened economy, the flattening of incomes over the years and a fiscal environment characterized by exorbitant costs.
“We earn thousands less for full-time work than a person of the same age a generation ago,” explained Kershaw in a Globe & Mail interview. “We’re more than twice as likely to have postsecondary [education] so we’ve delayed starting our careers. We’ve put in more time to be better educated only to land jobs that pay less and that less often have pensions and other benefits…then these young adults spend hundreds of thousands of dollars more for the privilege to live in an average home, and often these days average homes are smaller—little more than apartments with balconies, not homes with a backyard.”
Kershaw added that while increased government intervention in student-debt reduction and affordable child care might pave the way for more home ownership among the young, it would take years—and even decades—to see any noticeable effects on a market that is facing the prospect of a ticking demographic time bomb.
The only real advice is that millennials need to concentrate on what they can actually afford to buy, given their current situation. To help become a more attractive mortgage borrower, millennials should also quickly pay down lines of credit or credit cards with high-interest debt—concentrating on tackling this debt before starting to save for a down payment on a home.