National Post

MORTGAGE STRESS TESTS ARE SQUEEZING MILLENNIAL­S, STUDY SHOWS.

Homebuying resources down 16 per cent

- NAOMI POWELL

The homebuying budgets of Canadian millennial­s shrank by 16 per cent or just over $40,000 following the introducti­on of tougher mortgage qualificat­ion rules in January, according to a new study.

And young buyers are increasing­ly responding to these tighter budgets by pooling money with partners, sitting on the sidelines of the market a little longer or turning to parents for financial help in order to make a purchase.

“For peak millennial­s, the group which makes up the bulk of our first-time homebuyers, the path to property ownership has been a challengin­g one,” said Phil Soper, chief executive at Royal LePage, the real estate firm that developed the study. “In our largest cities, it is difficult for young people to purchase a home on a single household income.”

Citing Statistics Canada data, the study found that “peak millennial” homebuyers — those between the ages of 24 and 31 — had an median annual salary of $38,148 after heating and property tax costs of $185 per month. Prior to the introducti­on of mortgage stress testing, buyers in this group who qualified for a 3.09 per cent mortgage rate could afford a maximum homebuying budget of $243,349, including a 20 per cent down payment.

The new rules introduced by the Office of Superinten­dent of Financial Institutio­ns require homebuyers to prove that they can pay their uninsured mortgage at the negotiated rate plus two percentage points or at the five-year benchmark rate published by the Bank of Canada — currently 5.14 per cent.

Under these rules, the average millennial homebuying budget fell to $203,246 under a 5.14 per cent mortgage rate, a drop of $40,103 or 16.5 per cent, according to the study.

“That might buy something elsewhere in Canada but it makes Vancouver and Toronto basically completely unaffordab­le,” said Tom Storey, a realtor with Royal LePage who deals primarily with first time homebuyers. “And for an average couple it won’t buy much. They’ll probably have to go into the suburbs.”

When their two incomes are combined, an average millennial couple sees their maximum purchase price decrease to $406,479 — down from $486,674 prior to the stress testing. But the wide disparity in home prices across the country means that what their budget will secure at one end of the country is far different from what it will buy at the other.

For instance, millennial couples working with a budget of $325,000 to $425,000 could buy 1,736 square feet of space in Halifax compared to just 788 square feet in the Greater Vancouver Area, the study states.

While Storey acknowledg­ed that incomes also range between Canada’s major cities, his own experience is that most young buyers are turning to family for financial support.

“About 75 per cent of my clients have backing from their parents,” Storey said. “Some get a little help, some get the whole down payment. It’s definitely the norm.”

 ?? JUSTIN TANG / THE CANADIAN PRESS ?? Bank of Canada Governor Stephen Poloz expects housing to begin recovery this quarter.
JUSTIN TANG / THE CANADIAN PRESS Bank of Canada Governor Stephen Poloz expects housing to begin recovery this quarter.
 ?? JAMES MACDONALD / BLOOMBERG FILES ?? An aerial photograph of a Toronto housing developmen­t. New mortgage rules have taken a 16-per-cent bite out of millennial­s’ homebuying power.
JAMES MACDONALD / BLOOMBERG FILES An aerial photograph of a Toronto housing developmen­t. New mortgage rules have taken a 16-per-cent bite out of millennial­s’ homebuying power.

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