Graduate, land a job, buy a house. That was the trajectory many of our parents took to step on the property ladder. But for Millennials living in Canada’s largest cities, the path isn’t as clear. For some (okay fine — for me), it looks more like: Graduate with student loan debt, land a job (or contract — whatever you can get), buy a plant, scroll Instagram, rent forever. The only stereotype I haven’t fallen prey to is avocado toast.
Millennials fall between the ages of 23 and 37. There are over nine million of us in Canada (we make up 27 percent of the population) and 80 million in the United States. CIBC polled this cohort in 2018 and found that nearly half of Canadian Millennials dream of homeownership in the next five years but here’s the catch: Only 24 percent have started to save or have accumulated more than a quarter of their downpayment (I feel seen). This is significant, considering the National Bank revealed it would take 102 months for a Toronto household earning a typical income to save for a downpayment.
Millennials are vastly different from their folks when it comes to homeownership. I spoke to a mortgage agent, a certified financial planner and a financial educator to pick apart how.
1. Millennials are buying in at astronomical prices.
When Baby Boomers — anyone born in the late 1940s and throughout the 1950s — were buying their first homes in Toronto, they got it for a song. In 1987, the average home cost $189,105. In May 2019, the benchmark price for a Toronto home was $879,300.
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GTA-based mortgage agent Dion Beg breaks it down: “The typical wage for a university graduate at the time was around $40,000. When two university graduates got together, they had a combined income of $80,000. Back in the day, that house represented only about three times their household income.” Today, that same house represents more like eight or nine times the average combined Millennial income.
2. Millennials are saddled with student debt.
“When their Baby Boomer parents came out of school, they had very little student loan debt and not as many people went to university,” says Kelley Keehn, a personal finance educator and consumer advocate for FP Canada. “Either way, you were almost guaranteed a job. Now, it’s almost expected that you graduate with a degree and you’re still not going to get your dream job. It’s going to take a lot of time.”
Our parents used to be able to pay off their tuition — which averaged around $1,000 a year — with summer jobs. Today, the average tuition for a Canadian university — before the cost of books, travel and supplies — is $6,500 per year. It gets even more costly as you climb the education ladder — anywhere from $8,000 to $22,000 per year.
3. Welcome to the gig economy.
Gone are the days of securing a great job out of school and climbing the ranks until retirement (and with a hefty pension). “There have never been more people either self employed or forced into the gig economy,” says Keehn. “That’s going to make it harder for you to be approved for a mortgage than most.”
“What I see with Millennials is that if they are getting jobs, it’s often contracts. And so they don’t have that level of security,” says Jeanette Brox, a Toronto-based certified financial planner.
4. Millennials have seen some shit.
“The Boomers were living in a more prosperous and less tumultuous time,” says Brox. “Whereas, the Millennials have grown up with exposure to big corporate bailouts, banks failing. Not in Canada but they’ve been exposed to more of a negative global environment.”
Peak Millennials in the US reached adulthood as the economy fell into the most severe recession since the Great Depression, resulting in a weak labour force that clipped earning potential and opportunity.
5. Millennials dream of homeownership but they also want to cross items off their bucket lists.
Millennials are a cohort that love to travel and cross items off their bucket list.
“Homeownership was the dream of the Baby Boomers. It was really instilled in them that homeownership was a necessity and a source of pride,” says Keehn. “I think the Baby Boomers were much more willing to scrimp and save. If you talk to older Canadians, they’ll tell you that maybe they went on one family vacation in their life. And Millennials want to go on a great vacation every year.”
Of course, this isn’t the case with everyone. “There are some Millennials who are outside the norm,” says Brox. “I’m working with someone right now and their eyes are open when it comes to tracking expenses.”
6. Millennials are getting loans from the Bank of Mom and Dad.
An HSBC survey from 2017 revealed that while slightly more than a third of Canadian Millennials now own a home, nearly two-fifths of them had help from mom and dad to get into the housing market.
“Some of my clients are parents who have been in a good position to help their children,” says Brox. “They wanted to see their kids have some level of security.”
7. Without family help, Millennials are getting really creative.
Many Millennials have rejected the traditional brand of homeownership and are financing their downpayments in creative ways. “I worked with a couple that bought fixer-upper houses. Both of them were inclined to do the renovations. So that’s how they got in,” says Brox.
Keehn is excited to see Millennials thinking outside the white picket fence when it comes to traditional homeownership. “A lot of people are getting really creative with cohabitation — not necessarily with a lover, but with a friend or coworker.”
8. To be fair, our parents paid higher interest rates.
Baby Boomers will remember a two-year period beginning the fall of 1980 where interest rates were consistently more than 15 percent, peaking at just over 21 percent in the end of 1981. In fact, for a full 18 years (from 1973 to 1991), interest rates never fell below double digits.
Keehn, now 44 and part of the Generation X cohort, remembers paying about nine percent on her first condo. “That would kill people today,” she says.
While a return to such heights is not a likely prospect anytime soon, it wouldn’t take much of a hike to wreak havoc on many homeowners today. To protect us from the threat of rising interest rates, the federal government passed the mortgage stress test in January 2018 which makes homebuyers qualify for their mortgage at either the Bank of Canada’s qualifying rate (currently sitting at 5.34 percent) or the buyers’ contracted interest rate plus two percentage points (whichever is greater, unless you’re putting down less than 20 percent in which case you just have to qualify at the Bank of Canada’s qualify rate). For example, if you put down ten percent on a house and your interest rate is three percent, you have to prove you have the money to qualify at 5.34 percent.
This has greatly reduced buying power for many and has edged some (especially first-time buyers) out of the market entirely. But this isn’t necessarily a bad thing. “You have to be prepared for an uptick of rising interest rates. So you don’t made a long-term decision based on current lower interest rates,” says Brox.