More than a third of all millennials in Canada own their own home, and 82 per cent of those who don’t own one plan to buy one soon, according to HSBC. The bank conducted their first “Beyond the Bricks” survey, that looked at home ownership in nine countries for adults 35 and under. The survey challenges the belief that younger Canadians have given up on home ownership in the face of rising home prices.
The survey also points to a major disconnect between home ownership goals, and the economic reality for millennials across the world: 56 per cent of those who bought a home in the last two years ended up overspending their budget. And over two-thirds of millennials (64 per cent) who didn’t own a home said they need a higher salary in order to buy.
“This study challenges the myth that the home ownership dream is dead for millennials around the world. With four in ten already owning their home, the dream of home ownership for millennials is definitely alive and kicking,” said Louisa Cheang, HSBC’s global head of retail banking.
“The greatest challenges are in those countries where there is a perfect storm of stagnating salaries and rising house price. For millennials in those countries, the dream, while not dead, looks set to be deferred,” she said.
Low salary growth + high house price growth = ?
In Canada, the average house price rose 7.4 per cent in 2016. The average Canadian salary, however, is expected to rise less than one per cent this year.
On an international scale, low salary growth coupled with rapidly rising house prices seemed to be the reality in most of the other eight countries examined (including the U.S., the U.K., and Australia). This could partially explain why so many millennials want to buy, but have neither the resources nor a concrete plan in place to do it.
Just under one third of those looking to buy have no budget in mind, and another 54 per cent say they have only an “approximate budget.” Many also say they are willing to make big sacrifices to buy a home: more than half are considering spending less on leisure and going out and 21 per cent are prepared to delay having children.
Conversely, 36 per cent of millennials who already bought their own home turned to their parents as a source of funding.
Using Airbnb to cut mortgage costs
For many Canadian millennials struggling with the cost of owning a home, short-term rentals have provided an alternate source of income as well. In a survey done by AtlusGroup, a real estate research firm, 15 per cent of millennial home owners in Toronto, Montreal, Vancouver, and Calgary reported renting out part of their home using a short-term accommodation service, like Airbnb. That’s compared to just four per cent across all ages.
Millennials with mortgages in those big cities have turned to renting short-term 22 per cent of the time.
Tips for millennials to enter the housing market
If you’re not into renting out part of your home just to be able to afford a house, HSBC has four handy tips for millennials entering the housing market:
- Plan early and don’t underestimate the deposit. Start planning early to make home ownership a reality. This includes saving for the deposit, closing costs, etc. Do your research on purchase prices, and find a competitive mortgage rate to help make borrowing the rest more affordable.
- Budget beyond the purchase price. Think about the extra things that will turn the house you buy into the home you want to live in (furniture, fixtures and renovations), and make sure to include them in your budget.
- Consider what sacrifices you can make. Consider cutting back on your day-to-day spending and put a budget in place. Think outside the box in terms of other methods that can help you buy a home sooner, such as buying with a family member or friend.
- Get a full view of your finances. Think of your mortgage as part of your long-term financial plan, not as a one-off transaction. Different types of home loans suit different needs and situations. Seek professional financial advice if you need help in making the right choice.
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