Millennials and Vancouver Real Estate – The Struggle

So we’ve all heard the stereotypes about millennials. People say they’re lazy, they stay at home with their parents so they can spend their money and time out at clubs, they don’t want to get jobs, the list goes on.

But is this really true? Of course not. A number of recent studies have broken down just why it is that so many millennials are unable to get out of their parents’ homes and into the real estate market.

Millennials – Entitled? Or Just Thrifty?

A recent study of millennials in Metro Vancouver shows that these young people are spending less on leisure products like alcohol and tobacco than their early adulthood counterparts in the 80’s and 90’s. Instead, over 30% of Vancouver millennials who are staying with their parents are reportedly saving over half their income in order to one day afford their own place. Of these at-home millennials, 57% report that living with their parents is the result of not being able to make enough to pay rent elsewhere.

So much for lazy or entitled. Skyrocketing real estate prices in Vancouver, it turns out, have essentially left these 20-35-year-olds with no alternative but to live at home and try to scrape together enough to one day get into their own place. In fact, studies have also shown that young people in the 20-35 age range spend 30% of their income on rent, which is higher than any other demographic. Add this to the cost of transportation, which makes up between 16 and 22% of their income, and you get as much as 52% of millennials’ income being consumed by basic living expenses.

No wonder they aren’t flooding the real estate market!

Down Payments & Credit

For the millennials who do manage to put together money for a home, there arises the issue of financing. Getting into a home is a complicated process which typically requires mortgage loans, but how many millennials have the kind of impeccable credit banks are looking for?

Millennials are a generation who are all-too-familiar with debt. The average Canadian student graduating from university carries $27,000 in debt right out the gate. Additionally, let’s not forget that this is a generation which was very much present for the financial meltdown of 2008. This combination of factors has, understandably, left millennials extremely gun shy about accruing credit debt.

As a result, millennials are far less likely to own or use credit cards. 63% of adults between 18-29 do not own a single credit card, with an additional 23% only owning one. This means that a huge percentage of millennials have either bad credit or none at all, with a study at NerdWallet pointing out that this generation has the lowest average credit score of any age group.

So, for the millennial who is able to put together some cash for a home, they run into the stumbling block of trying to qualify for a home loan without credit.

The Daunting Labyrinth of Real Estate

Despite the financial challenges young people are facing today, some of them do manage to put together enough savings to find their own home. But what happens then?

The real estate market is not always the simplest or easiest thing for inexperienced people to navigate. As a result, there are an abundance of services available to help people new to home ownership, from brokers and realtors to bankers and loan companies.

For millennials, however, this confusing landscape presents a significant challenge. For one thing, the service of a broker to help with home purchasing adds to the overall cost of owning a home; a cost which many millennials can barely afford as it is. Additionally, millennials, more than other generations, tend to be leery of real estate experts, again as a result of the 2008 real estate catastrophe which looms large in their collective memory.

Without a guide to navigate the real estate market, a lot of millennials simply stay away, settling for rentals and apartments.

So That’s It then?

Despite apocalyptic reporting and headlines like “Millennials are ‘Generation Screwed’ When It Comes to Real Estate”, reports also indicate that an overwhelming majority of millennials still feel that homeownership is a valuable concept and an important measure of success. To those millennials, the takeaway should be this: the forecast may be dark and times may be difficult, but hope is not lost.

Recent changes in fiscal policy and real estate law have added some tools and options for first time buyers, particularly millennials. While prices in Vancouver are expected to continue to rise, we’ll cover some options for millennials looking to find a way into the real estate market in our ongoing segment on millennials and real estate. Stay tuned!

Tracy Valko, Mortgage Broker, B.A., AMP
Dominion Lending Centre
tracyvalko.ca

If you enjoyed this post you will love her blog – tracyvalko.ca/blog/

Supply and Demand in The Canadian Real Estate Market – A Crisis?

Over the last two years, the Canadian real estate market set records. But what is the prognosis for 2017? Will housing prices continue to grow? Or will the housing market bubble finally burst? With new regulations being passed, and an ongoing shift in nationwide demographics, 2017 is shaping up to be an interesting year for both sellers and buyers in the real estate market.

Restricted Supply, Increasing Demand
“It’s not very complicated: there’s a supply curve, there’s a demand curve. If you restrict the supply curve, then don’t be surprised by high prices.” – David Dodge, BoC Governor

As you likely know, supply and demand is the backbone of all commercial endeavor. Low supply and high demand causes prices to increase, while the reverse means a decline in prices. Over the past couple years, demand for housing in Canada has grown at a remarkable rate. Despite nationwide blanket attempts (through government policy) to stymie demand, factors like increasing immigration and population flow into urban centers has caused demand to remain high. As a result, prices and sales both reached record-setting levels.

While demand increased, however, supply could not keep pace. Despite outcries from banks, brokers, and builders for lawmakers to focus on supply rather than demand, many local politicians remained hesitant to foster housing development. For instance, new housing supply plummeted in Toronto and, in Vancouver, supply remained far below long-term historical levels. In addition, the surging prices and overvaluing of homes led to many home-owners opting not to sell. A lot of these homeowners were afraid not only of losing money on their investment, but also that they would be unable to afford another home. Less people willing to sell = less supply.

Effect on the Market
As demand grew at a rate with which supply, for a variety of reasons, could not keep up, policymakers across the nation had to act in order to prevent market instability. Many experts believe that policies, which have been implemented recently, could finally fulfill politicians’ goal of stifling this increasing demand. Despite trends that continued up until the end of last year, it would appear that these latest measures will finally curb the market after the historic sales of both 2015 and 2016.

While the hottest markets, like those in Toronto and Vancouver, are expected to continue to grow, markets throughout the rest of Canada are expected to slow and flatten out. Even among the markets, which are slated for increasing prices, the rate at which they are projected to grow will be less than years previous. If supply is constricted and demand is increasing, why is that the case?

The biggest factor when predicting the real estate market in 2017 is the legislations, which were introduced in 2016. By tightening the regulations on buyers qualifying for mortgage financing, less people are going to be willing or able to enter the market. Additionally, mortgage rates are expected to increase, which is another obstacle for buyers. Furthermore, pressure has increased on lawmakers to re-assign the burden of defaulted loans to the lenders themselves, rather than the insurance providers behind mortgage loan insurance policies. If this takes effect, lenders will be forced to implement even stricter qualifications, even further reducing the incentive to buy homes.

What This Means for Prospective Buyers
If you or your clients are looking to get into the market in 2017, how does all this talk of legislation and supply-and-demand affect you? First off, in plain language, it means that prices are still high. Not only are prices high, but estimated overvaluation in some areas can be as high as 20%. It also means that finding a home, even should you be willing to pay the inflated price, might be difficult as many Canadians are staying put.

Don’t be discouraged yet! Despite all the hurdles to home-owning that have just been outlined, there is a silver lining, as well. As more people are forced out of buying market, demand will decrease, encouraging sellers to establish more competitive rates. The new liberal legislation, from taxes to mortgage qualifications, will likely begin to drive these prices down as 2017 goes forward. For buyers willing to wait until at least the second quarter of 2017, they will see prices begin to fall into a much more reasonable and less-inflated range.

It is also important to note that, while we have been discussing Canada, in general, market outliers like Toronto and Vancouver can dramatically affect the overall picture of the market. That is to say, inflated prices aren’t happening everywhere, certain large cities can just happen to give that impression when looking at the large picture. For buyers with some flexibility, it can also pay to consider the less-impacted areas like British Columbia, Ontario, Saskatchewan, and Nova Scotia.

Even with the recent changes to mortgage rules, you can be the knowledgeable broker who can walk prospective buyers through the experience of buying a home. It is important to be the broker who knows the business and can provide your clients with all the information needed to make this vital life decision, especially during a time of market transition. Most clients are extremely interested in finding out more about buying a home in the current market. Be the professional mortgage broker that your clients need you to be and provide them with information that they don’t even realize is part of your job description.

What This Means For Home Owners
For those already in the housing marketplace, the biggest concern is probably market value. If the shifting landscape of the market causes prices to drop, what will happen to the value of the home you already own?

According to reports, the rising home values of the past couple years created the highest relationship between net worth and disposable income in Canadian history. This is a good thing. Even better, these same reports indicate that many homeowners would not stand to lose everything in the event of a market crash (which many experts are calling unlikely). The DBRS indicates that, even in the event of a crash, the equity of Canadian homes would drop, at worst, to around 60% of their value. This might be less than ideal, but it is far from the catastrophic market crash, which rocked the United States and other countries in recent years.

Bottom Line
The last couple years have been historic in the Canadian real estate market, but all things must come to an end. As a result of new Liberal legislation, most experts believe that 2017 will be the year which ends the rampant growth of the past couple years. Prices and sales are both expected to fall, homes will become less expensive, and, perhaps most importantly, Canada is expected to avoid a major market meltdown. If your clients are looking to buy a home, this might just be the year where homes become affordable again.

Tracy Valko, Mortgage Broker, B.A., AMP
Dominion Lending Centre
tracyvalko.ca

If you enjoyed this post you will love her blog – tracyvalko.ca/blog/