The Canadian housing market has been on a tear the last 5 years. It's not secret that the dream of home ownership for the next and future generations is becoming harder and harder to achieve. Being able to afford the downpayment on a home is usually the biggest barrier to entry along with simply pre-qualifying for a mortgage, in essence, it comes down to affordability of the Niagara real estate market.
What's the solution? Well as we saw in the electoral campaigns the government has their plans (much of which I don't believe is a reasonable solution to affordability and cooling the real estate market here in southern Ontario) and even if those promises do come through it'll be some time before we see the effects of it. The solution for today for most new homebuyers... take a loan from BOMAD - the Bank of Mom and Dad.
According to a report by CIBC Economics, parents gave their kids just more than $10-billion in down-payment funding over the past year, a total of 10% of total down payments over that same time frame. Just less than 30 per cent of first-time buyers got this help, which averaged to about $82,000. The CIBC report is one of the first attempts to dig into the impact that parental gifts are having on a housing market where prices have surged higher for more than a decade.
Low interest rates, immigration and a pathological drive to own homes have mostly fuelled the housing market. Parental money is a final ingredient – the secret sauce in keeping the wheels spinning.
One item to note is that these extensions of family lending will be widening the wealth gap between young adults who were fortunate enough to have parental help with their down payments and those who weren't. Those who were granted BOMAD funding will have smaller mortgages, less interest payments, and longer time in the market to take advantage of the home equity gains. Whereas those without are found waiting for the market bubble to burst, trying to save up and watching the dream of home ownership slip through their fingers.
One things that I wonder as a young parent myself is whether we are coming to a new normal here. Is helping my/our children get into the housing market going to be a future expectation and necessity such as college, wedding, or retirement savings?
The question yet to be answered about down-payment gifts is whether we are at a tipping point for parental obligation. Is helping your adult children get into the housing market on its way to becoming the new normal? Must parents try to save for that, alongside their retirement?