Photo: James Bombales
Canadian parents are helping their children buy their first home, but this support is increasing demand and sending prices soaring.
One-third of Canadian Baby Boomers plan to or have already given family members a living inheritance with the specific goal of helping them to buy a home, according to a survey conducted by Sotheby’s International Realty Canada and Mustel Group.
"There's no question that this is opening up more demand for real estate, more buyers able to buy real estate by virtue of the fact that they're being supported by their parents,” Brad Henderson, CEO and President of Sotheby’s tells BuzzBuzzNews.
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In the 2017 Generational Trends report, published on Tuesday, Canadian Baby Boomers (people 52 to 71 years in age) from Toronto, Vancouver, Calgary and Montreal were surveyed about their current real estate market confidence and if they’re gifting a living inheritance for the purpose of helping a relative to buy a home.
In line with what’s commonly observed anecdotally, 87 per cent of Baby Boomers who have or plan to gift their living inheritances for a real estate purchase will do so to their adult children.
Parents have been helping their children financially for a long time, says Henderson. But with Baby Boomers accounting for roughly 30 per cent of the country’s population, he adds that this particular wealth transfer now is much more significant.
Out of the four Canadian metropolitan areas surveyed, Baby Boomers in Calgary are the most likely to have given or plan to give a living inheritance for the purpose of buying a home, with 41 per cent indicating this in the survey. In Vancouver, 36 per cent of Boomers said they would gift money for the purpose of real estate, followed by 35 per cent in Toronto and 27 per cent in Montreal.
According to the survey, the estimated median amount of a living inheritance transfer for property purchases is under $50,000.
With this additional wealth being gifted to the next generation, Henderson says it's opening doors to homes and borrowing options that would otherwise not be available.
Fourty-four per cent of Baby Boomers who have or intend to give a living inheritance believe their relatives would not be able to purchase a home without their gift. In addition, one-third of givers said that without their gift, their beneficiaries would not be able to secure a conventional mortgage.
Although this intergenerational wealth transfer is providing opportunities, Henderson says it will add to demand in some markets that are already some of the nation’s hottest.
"The demand that we're seeing from the next generation of real estate purchasers is putting additional pressure on price,” says Henderson.
“And the real challenge, particularly in markets like Toronto and Vancouver, is that there is an imbalance between supply and demand, and unless there's more supply we're going to see continued price increases in both of those markets,” he adds.