Almost one in five first-time home buyers is getting financial help from parents, and the average amount of that help is $150,000. If you’re wondering how first-time buyers can afford the down payments required to get into the housing market today, these numbers, drawn from the Canadian Imperial Bank of Commerce client database offer some insight.
Low interest rates have kept mortgage payments manageable for first-time buyers, even as housing prices have soared. But for many buyers, the bigger obstacle is the down payment. Cities like Toronto and Vancouver where average prices are above $1million means a minimum 20-per-cent down payment, or $200,000 is required.
CIBC numbers indicate that 19% of first-time buyers are getting parental help, up from 15.5% in 2015. There’s nothing remotely new in parents helping adult children buy houses – many boomers and Gen Xers had this support. But the dollar amount of help has more than doubled from the 2015 level of $71,000.
Almost 6% of non-first-time buyers got parental help, down a bit from 7.2% in 2015. But the average amount of money given to these move-up buyers by their parents jumped to $198,000 from $83,000 in 2015.
Benjamin Tal, deputy chief economist at CIBC World Markets, said these are preliminary numbers he will explore in an upcoming report. For now, he surmises the money is coming from a mix of debt and savings. Mr. Tal said there’s a sense of urgency among parents with adult kids who don’t have houses. “Parents are encouraging kids to get into the market to take advantage of extremely low interest rates and they’re saying, you know what, we’ll help.”
It’s hard to know what to say to the young adults with no help from BOMAD – the Bank of Mom and Dad. Save harder? We are left with solutions for aspiring homeowners that have limited applicability, such as buying in a small town or sharing a home with retired parents or even friends. Or you can wait until rising incomes and falling or stagnant house prices converge in a way that makes down payments more affordable.
The federal Liberals promised some down-payment help for first-time buyers in the party’s election platform. The maximum mortgage eligible for CMHC insurance down payments of less than 20 per cent, would rise to $1.25 million from $1 million and be indexed to inflation. Mr. Tal believes parental gifts are part of the reason why house prices have risen so sharply. “Clearly, this is significant,” he said. “It makes the difference between getting into the market and not getting into the market.”
