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

  8/17/2017 |   SHARE
Posted in Real Estate Market by Vanguard Realty | Back to Main Blog Page

According to the Royal LePage Peak Millennial Survey released today, 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 power².

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.

Provincial Summaries and Trends

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."

Alberta

Across the mountains in Alberta, suppressed market conditions and ample supply over the last couple of years has given rise to the highest proportion of peak millennial homeowners in the country, with 42 per cent of respondents owning property. However, of those millennials between the ages of 25 and 30, only half believe that they will be able to purchase a home in the next five years – the lowest rate in all of Canada.

"By-and-large, millennials fare relatively well within the Alberta real estate market if they are prepared for homeownership and are competently managing their debt levels," said Dawn Maser, REALTOR®, Royal LePage Benchmark in Calgary. "With commodity prices below their historical averages, market characteristics across the province have slightly stuttered in the past couple of years, resulting in inventory levels building up – particularly in the condominium segment – presenting prime opportunities to many who have managed to save their money through the good times."

When asked, 51 per cent of respondents in Alberta believe that the recent implementation of more stringent mortgage stress tests have impacted the types of properties that they can afford, with 32 per cent stating that they wouldn't be able to qualify for a mortgage at all. While 52 per cent believe that they cannot afford a home in their region, a further 44 per cent do not want to pull the trigger on property ownership in their region due to job uncertainty.

On average, with a $350,000 budget, peak millennial purchasers within the province generally net a 3.0 bedroom, 2.0 bathroom two-storey home with 1,528 sq. ft. of living space. When looking to Calgary, these characteristics remain relatively stable, with a budget of $350,000 often offering purchasers a fairly comparable 1,458 sq. ft. two-storey home with 2.5 bedrooms and 2.0 bathrooms.

Saskatchewan and Manitoba

As two of the most affordable regions in Canada, peak millennials tend to fare relatively well in Saskatchewan andManitoba. Unlike most other provinces, the majority (50 per cent) of respondents from these two regions believe that housing within their markets is affordable, and are the least likely to state that the new mortgage regulations have impacted their purchasing power (42 per cent).

"With something for everyone, real estate markets in Manitoba offer peak millennials significant value for their money," said Michael Froese, managing partner, Royal LePage Prime Real Estate in Winnipeg. "With a steady source of income, many are able to save for a home in the region rather easily when compared to other provinces, making the decision to purchase property more of a question of 'when' as opposed to 'if.'"

Instead of worrying about whether they can purchase a home, over half of the peak millennials surveyed (57 per cent) within these regions simply did not think they would purchase a home within the next five years because they would like to hold off until they can attain the type of home they want, or receive more job certainty (45 per cent).

"While the current status of Saskatchewan's resource-based economy has hampered some millennials' ability to purchase property, homeownership is still very much within reach for those between the ages of 25 and 30," added Shayla Ackerman, sales representative, Royal LePage Regina Realty, Regina. "Those looking to buy are finding excellent selection due to increased inventory at a favourable price."

In the two provinces, purchasers with a budget of $350,000 can typically find a 3.0 bedroom, 2.0 bathroom two-storey home with 1,575 sq. ft. of living space. When looking to Saskatoon, Regina and Winnipeg, these features remain the same, offering 1,427 sq. ft., 1,538 sq. ft. and 1,712 sq. ft. of living space, respectively.

Ontario

Despite boasting the greatest proportion of peak millennial respondents hoping to purchase property within the next five years (72 per cent), high home values in Ontario have kept many on the sidelines, with only 59 per cent believing that they will be able to own a home in the next half-decade. When asked, roughly three-quarters (72 per cent) of respondents within the province believe that homes in their region are not affordable, and a further 51 per cent believe that the new mortgage regulations have impacted the types of properties that they can buy.

Thus, while 59 per cent of peak millennials surveyed in Ontario would like to buy a detached home, only 30 per cent believe they will be able to afford one. Consequently, given that 86 per cent of peak millennials view real estate as a good investment, many are willing to move to other cities or suburbs where property is more affordable (66 per cent), or have sought out alternative living arrangements that allow them to save significant amounts of money for a down payment on a home.

"As affordability continues to wane in Ontario's largest markets, many purchasers have become increasingly inventive in their pursuit of homeownership," said Tom Storey, sales representative, Royal LePage Signature, the Storey Team in Toronto. "Having saved up a significant amount of money in an attempt to buy a home, many peak millennials have begun to purchase property outside of their markets in more affordable suburban areas, electing to rent them out in order to build enough equity to enter the province's more prominent areas."

"To many peak millennials, entering the real estate market as quickly as possible is no longer just a good idea, it's a must," concluded Storey. "After witnessing significant home price appreciation occur for months, if not years, their perspective is that they must enter the market in the immediate-term to avoid being completely shut out, missing the opportunity to move up the property ladder, as they've seen so many do."

When looking for a home, prospective buyers in Ontario with a budget of $350,000 typically purchase a 2.5 bedroom, 2.0 bathroom two-storey property with 1,338 sq. ft. of living space. In the Greater Toronto Area, purchasers often receive significantly less for $350,000, netting a 910 sq. ft. condominium with 2.0 bedrooms and 1.5 bathrooms on average. Those looking for property in Ottawa tend to fare far better with the same budget, garnering a 1,740 sq. ft. two-storey home on average, with 3.0 bedrooms and 2.5 bathrooms.

Quebec

Boasting one of the largest proportions of peak millennial renters in the country (55 per cent), purchasers between the ages of 25 and 30 typically fare quite well in the Quebec real estate market. Within the province, the vast majority (the highest rate in the country) of purchasers in this age group (89 per cent) view property as a sound investment, and believe that home values are very much within their grasp, with only 23 per cent of respondents stating that they would not buy a property in the next five years because they could not afford it. Instead, the two biggest reasons for staving off a home purchase within the province revolved around job uncertainty (39 per cent) and not being able to afford the type of home they want (34 per cent).

For the most part, peak millennial purchasers in Quebec are often unwilling to compromise during the home search process. The province is home to the second lowest proportion of those willing to move to another city or suburb where property is more affordable (57 per cent), with 51 per cent believing that they would only travel within 30 minutes from their current location.

"Peak millennials in Quebec tend to be extremely savvy when it comes to real estate, often entering the market with a very specific set of demands based on maintaining their current lifestyle," said David Tardif, real estate broker, Royal LePage Altitude in Montreal. "If they can't find the property they want, many will keep renting until they have enough savings built up to afford the property that matches their criteria. That said, the more they wait, the more they risk being priced out of the market as home prices increase faster than their ability to save."

Typically, with a budget of $350,000, peak millennial purchasers in Quebec are able to find a 1,522 sq. ft. bungalow with 3.0 bedrooms and 1.5 bathrooms on average. These home characteristics remain relatively unchanged when venturing into the Greater Montreal Area with purchasers typically netting a 3.0 bedroom, 1.5 bathroom bungalow with 1,427 sq. ft. of living space.

Atlantic Canada

With the lowest property values nationwide, peak millennial purchasers in Atlantic Canada are often able to realize the dream of homeownership far faster than those found anywhere else in the country. For this reason, the region boasts the highest percentage (69 per cent) of millennials aged 25 to 30 who believe that they will be able to afford a home in the next five years.

"Typically, peak millennials fare extremely well in Atlantic Canada," said James Marjerrison, REALTOR®, Royal LePage Prince Edward Realty in Charlottetown. "With a significant amount of extremely affordable housing, and a much lower cost of living, purchasers within this region are often able to save up enough money and find the perfect home with relative ease."

According to the survey, Atlantic Canada boasts the highest number of peak millennials who think property within their market is affordable (59 per cent). As a result, 75 per cent of peak millennials studied within this region often hope to seek out and buy a detached home, with 54 per cent realistically believing that they will be able to afford it.

"Peak millennials often do not need to make compromises when looking for a home in Atlantic Canada," said Karen Syroid, real estate professional, Royal LePage Gardiner Realty, the Syroid Group in Fredericton. "For this reason, many millennials today are making housing decisions based on criteria that other generations simply haven't thought of in the past. They want a home that will help them augment their lifestyle, and refuse to shrink their budget to the point where they have to give up the things they love."

When asked, 87 per cent of peak millennials within the region view homeownership as a good investment, and 64 per cent are willing to move to another suburb or city where property is even more affordable. In particular, Atlantic Canada is home to the highest rates of millennials between the ages of 25 to 30 who are willing to move into rural areas (27 per cent).

"Peak millennials make up a significant portion of the market in Atlantic Canada, acting as both first-time homeowners and move-up buyers," said Glenn Larkin, sales representative, Royal LePage Professionals 2000 in St. John's. "With many parts of the region offering significant value, purchasers will tend to go wherever the best deal is so long as the property is move-in ready and able to enhance their lifestyle."

Of the peak millennials in Atlantic Canada that believed they would not purchase a home within the next five years, 56 per cent stated so because they simply could not afford the type of property they want, while 40 per cent believed they wouldn't qualify for a mortgage – which is the largest rate of any area in Canada.

"While home values are very much affordable, economic opportunities across the majority of Atlantic provinces at times have been a challenge, especially for this age group," said Marc Doucet, broker of record, Royal LePage Atlantic in Halifax. "However, the relatively low cost of housing keeps the market entry point an accessible one for those in a position to buy."

Across the region, peak millennial purchasers with a budget of $350,000 can live extremely well, typically finding a 1,934 sq. ft. two-storey home with 3.0 bedrooms and 2.5 bathrooms. Of the regions studied within Atlantic Canada, Fredericton offered prospective homeowners the most value for their money, producing a 2,568 sq. ft., 4.0 bedroom, 2.5 bathroom two-storey home on average, while properties in St. John's were the least extravagant relative to other areas, typically providing purchasers with a 2.0 bedroom, 2.5 bathroom two-storey home with 1,767 sq. ft. of living space.

Average provincial and aggregated home purchase characteristics with a budget of approximately $350,000:

 

 

 

Methodology

The tables found within this report were provided by Brookfield RPS and represent averaged characteristics for properties that sold between $0 and $350,000 as at July 2017 and July 2012. To gain additional insight into regional market dynamics and property characteristics, interviews were conducted with Royal LePage real estate professionals in the featured cities. An online survey of 1000 peak millennials (age 25-30), was then completed between June 7 and June 14, 2017, using Leger's online panel, LegerWeb. A probability sample of the same size would yield a margin of error of +/-3.0%, 19 times out of 20.

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¹ Within this release, the term "Peak Millennial" refers to millennials between the ages of 25 and 30.
² The term "Peak Millennial" was first coined by U.S. economist, Dowell Myers to describe the largest cohort of millennials and their potential purchasing power. In Canada, the highest millennial birth rates occurred between 1987 and 1993, making those between the ages of 25 and 30 years old a sizeable, and important demographic in the Canadian residential real estate market.
³ Derived from Statistics Canada Census data
⁴ Statistics Canada, medium growth scenario. Projection based on 2011 census.
⁵ Property characteristic statistics are powered by Brookfield RPS

SOURCE Royal LePage Real Estate Services

Canada Real Estate, Canadian Housing Market, Home Buyers, Millenials, Real Estate Trends, Statistics Canada