Royal LePage Real Estate Services Loretta Phinney, Brokerage

From a Studio Apartment to a Large Detached Home

By: Loretta Phinney

From a Studio Apartment to a Large Detached Home

Tags: What the Average Peak Millennial Can Afford Across Canada

 

According to Royal LePage, Canada’s leading real estate services provider, peak millennials[1] are seeing significant disparities in the properties they can afford in the country’s largest cities. With a median salary of $38,148[2], this generation typically has a maximum home buying budget of $203,246[3]. This factors in a 20 per cent down payment, and the impact of OSFI’s new stress test, which has reduced the average peak millennial’s purchasing power by approximately 16.5 per cent, or $40,103. However, given that the aggregate Canadian home value currently rests at $605,512[4], many must either bide their time or look for creative solutions to finance a home purchase.
 

In major cities across Canada, a growing number of peak millennials will save, pool their money with a partner and/or borrow funds from their parents, many of whom are downsizing in retirement and can financially contribute to their child’s first home purchase. While peak millennials are largely able to afford their monthly mortgage expenses, coming up with an adequate down payment often proves to be the greatest hurdle to homeownership among the demographic. In areas with high home values, like Greater Vancouver and the Greater Toronto Area, a 20 per cent down payment often equates to over $160,000, or roughly the same price as a home in Moncton, New Brunswick.
 

“We have seen a rare pause this year in the relentless rise in the cost of housing,” said Phil Soper, president and chief executive officer, Royal LePage. “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, president and chief executive officer, Royal LePage. “In our largest cities, it is difficult for young people to purchase a home on a single household income. Some will purchase homes with family or friends, and some are following the age-old practice of saving money and waiting until they can effectively double their maximum budget with a life partner.”
 

When combined, a dual income peak millennial couple has a typical maximum budget of $406,479, exclusive of any help from the bank of mom and dad. In the first quarter of 2018, the average Canadian home listed between $325,000 to $425,000 (the price range of homes accessible to this dual-income demographic, with the higher end often receiving some financial assistance from their families) had 2.7 bedrooms, 1.8 bathrooms and 1,269 sq. ft. of living space. When broken out by region, homes listed between $325,000 to $425,000 in Greater Vancouver had an average of 1.5 bedrooms and 1.2 bathrooms, while homes in the Greater
Montreal Area and the Greater Toronto Area offered peak
millennial purchasers an average of 2.9 and 1.7 bedrooms and 1.5 and 1.4 bathrooms, respectively. Meanwhile, on the east coast, Halifax delivered the biggest bang for a peak millennial’s buck, offering them an average of 3.1 bedrooms and 3.0 bathrooms. In fact, of the seven cities studied across Canada, the region offered the most living space overall for prospective peak millennial purchasers, with homes in this price range averaging 1,736 sq. ft. In contrast, Greater Vancouver offered prospective peak millennial purchasers
the least amount of living space with an average of 788 sq. ft.

“There are striking differences in the options available to peak millennial purchasers across Canada,” continued Soper. “While $425,000 will largely net an entry-level condo in Greater Vancouver and the Greater Toronto Area, on the east coast, this budget unlocks the majority of the market, offering prospective millennial purchasers large, detached homes with all of the bells and whistles.”

 

Individual Peak Millennial Purchasing Power with an Annual Salary of $38,148[5] 

 

Before Stress Test

After Stress Test

Absolute Change

Percentage Change

Qualifying Interest Rate

3.09%

5.14%

2.05%

66.3%

Maximum Purchase Price

$243,349

$203,246

-$40,103

-16.5%

Maximum Mortgage

$194,679

$162,596

-$32,083

Associated 20% Down Payment

$48,670

$40,649

-$8,021

 

 

Peak Millennial Couple’s Purchasing Power with a Combined Annual Salary of $76,296[6]

 

Before Stress Test

After Stress Test

Absolute Change

Percentage Change

Qualifying Interest Rate

3.09%

5.14%

2.05%

66.3%

Maximum Purchase Price

$486,674

$406,479

-$80,195

-16.5%

Maximum Mortgage

$389,340

$325,183

-$64,157

Associated 20% Down Payment

$97,334

$81,296

-$16,038

 

 

Aggregate & Regional Home Attributes for Homes Between $325,000 and $425,000[7]

(For the three-month period ended March 31st)

City

Year

Beds

Baths

Living Space

Canada

2017

2.7

1.8

1,308 sq. ft.

2018

2.7

1.8

1,269 sq. ft.

Halifax

2017

3.1

2.4

1,787 sq. ft.

2018

3.1

3.0

1,736 sq. ft.

Ottawa

2017

3.0

2.2

1,487 sq. ft.

2018

2.9

2.3

1,495 sq. ft.

Calgary

2017

2.6

2.0

1,195 sq. ft.

2018

2.6

2.1

1,210 sq. ft.

Regina

2017

2.9

2.0

1,356 sq. ft.

2018

3.0

1.7

1,341 sq. ft.

Winnipeg

2017

3.0

2.0

1,482 sq. ft.

2018

3.0

2.0

1,413 sq. ft.

Greater Montreal Area

2017

3.1

1.7

1,468 sq. ft.

2018

2.9

1.5

1,344 sq. ft.

Greater Toronto Area

2017

1.6

1.4

816 sq. ft.

2018

1.7

1.4

856 sq. ft.

Greater Vancouver

2017

1.7

1.4

878 sq. ft.

2018

1.5

1.2

788 sq. ft.

 

[1] 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 (born between 1987 and 1998). For the purposes of homebuyer research, Royal LePage focuses on Peak Millennials aged 25 and older. In 2018, the range of birth years studied is 1987-1993.

[2] Statistics Canada 2016 Tax Data; adjusted for inflation

[3] Generated using the mortgage affordability calculator on Ratehub.ca, using five year fixed mortgage with 20 per cent down and a salary of $38,148. The mortgage rate for the stress test was set to 5.14 per cent to reflect the current five year Bank of Canada benchmark rate, while the pre-stress test rate used was 3.09 per cent.

[4] Royal LePage National Home Price Composite, Aggregate National Home Value, Q1 2018

[5] Assuming heating costs and property taxes equate to $51 and $134, respectively.

[6] Assuming heating costs and property taxes equate to $85 and $224, respectively.

[7] Data provided by RPS Real Property Solutions

[8] Listings in Greater Vancouver reviewed on April 23, 2018
Source:
www.royallepage.ca