Itās not an easy time to be a millennial home buyer in Vancouver. Increasingly high prices, low inventory and new mortgage qualification changes have made it a challenging time for young adults to enter the local real estate market.
Market conditions in Ā鶹“«Ć½Ó³» of the idea of home ownership, and have even caused some to consider . In a city where home ownership can feel like an impossible dream for twenty- and thirty-somethings, local industry professionals weigh in with their best advice for Vancouverās millennial cohort.
Feeling left out
Growing housing costs in British Columbia have meant that many in the āpeakā millennial age bracket ā those currently aged 25 to 30 ā who want to buy a home are not able to, according to a by Royal LePage released in August 2017.
āFacing challenges their baby-boomer parents never encountered, peak millennials are confronted with significant obstacles that vary depending on where they live,ā says Phil Soper, president and CEO of Royal LePage. āWhile finding employment in our largest urban markets, Toronto and Vancouver, is relatively easy compared with other areas of Canada, buyers face limited inventory and high home values in these regions.ā
Homeownership rates droppingĀ
When compared to their baby-boomer parents, millennial buyers are slower to enter the Canadian real estate market, oftentimes opting to rent instead of buy.
According to 2016 Census data released by Statistics Canada, just over half (50.2Ā per cent) of millennials who no longer lived with their parents were home owners in 2016, compared with 55.5Ā per cent of baby boomers back in 1981.
StatsCan also found that in the Ā鶹“«Ć½Ó³»Census Metropolitan Area (CMA), Ā鶹“«Ć½Ó³»had one of the highest proportion of households (32 per cent) whose housing costs were considered unaffordable ā meaning that families were spending 30% of more of their total family income on housing costs. With conditions like these, itās easy to see why millennials have struggled to navigate Vancouverās real estate market.
Mortgage matters
The federal government introduced a mortgage āstress testā last fall, which came into effect January 1. The test was once applied only to mortgage applicants of insured mortgages (those with less than 20Ā per cent down), but has now been extended to all mortgage applicants to include uninsured borrowers, who make up a larger portion of the mortgage applicant pool.
The stress test requires an applicantās income to qualify them for mortgage repayments at the Bank of Canadaās five-year posted rate ā higher than the discounted rate they would pay in reality ā to create a buffer against future rate rises and any financial difficulties.
Some believe that the new stress test is a positive thing for millennial buyers. āOver the last eight or nine years, weāve become very much used to ultra-low mortgage rates and I think that is changing,ā says Barry Magee, a Vancouver-based real estate agent. āWeāre going to get more back to a normal level of mortgage rates. If the government is looking out for you and adding that stress test and that extra 2% itās probably a good thing and something millennials should listen to.ā
Jump in or stay out?
Local experts have diverging opinions when it comes to millennials entering the Ā鶹“«Ć½Ó³»real estate market at this time.
āI definitely advise millennial buyers to be very cautious right now,ā says Magee. āThere are a lot of extenuating circumstances in the Ā鶹“«Ć½Ó³»market right now that arenāt particularly sound. The marketās gone up 70% in three years and we operate in what I like to call an unregulated global speculatorās market, so I wouldnāt say itās a great time.ā
However, other experts argue that thereās no better time than now to enter the real estate market.
āThere is no way to ātime the marketā perfectly, so if someone is thinking about purchasing and has the means to do so, just do it! Don't wait, because we all have to live somewhere,ā argues local agent Lindsie Tomlinson. āIt's better to be āpaying yourselfā with ownership than paying rent. If the market remained completely flat (which I don't think will happen), if someone sold a few years down the road, they would come out with the equity they put into their home, instead of a pile of rent receipts.ā
Get creative
With less-than-ideal market conditions, mortgage qualification changes and rising prices, embarking on the journey of home ownership can seem impossible for the millennial age group. However, experts argue that there are creative, lesser-known strategies millennials can use to take the plunge.
āIf itās possible to have your parents co-sign your mortgage for you, consider that,ā advises Tomlinson. āDonāt feel like youāre too proud to do that. I had to get my mom co-sign for me years ago because I wasnāt making much money at the time. I had the money saved up for my down payment and was able to afford the payments, but I didnāt make enough money so I had to have her sign. Then, when I went to renew my mortgage, I didnāt have to have her co-sign.ā
Buying a home with a group of friends is another creative strategy millennials can use to enter the real estate market.
āBuying a condo with one or two partners is a more creative way to get into the market. That way, youāre at least in the market even if you canāt afford to buy a primary residence if youāre priced out,ā explains local agent Matt Scalena. āThinking a little more creatively and combining forces with one or two other friends can work. One thing I would say is to get all of the terms spelled out before buying real estate with friends, because itās very easy to have misunderstandings when thereās money involved.ā
