Canada’s new Mortgage Stress Test, effective January 1, is aimed at cooling the Canadian real estate market. It was introduced to protect banks and depositors by limiting their risk. One of its less desirable consequences, however, is that it puts even more pressure on the shoulders of a generation whose financial woes are already well-documented. With this new measure, Millennials, who have already been nicknamed “generation debt”, may have to postpone buying their own home even further.
Tough Negotiations: Parents help with home buying, but there are hidden costs
One way out of this predicament, confirmed by the growing number of Millennials who choose it, is appealing to the bank of mom and dad. But this option presents costs that go beyond financial, as a recent article by The Star’s Emma Teitel shows. According to several Toronto real estate agents, more and more Millennials receive help from their parents when buying their first home – conditional help, that is.
What does that mean, more precisely? In exchange for their financial contribution, many parents require that they get involved in the process: they tag along to showings and try to negotiate prices. Needless to say, this can be frustrating for Millennials, who have to swallow two bitter pills at once: they cannot afford a mortgage and they have limited decisional power in something that concerns them directly.
Staggering Prices Coupled with Limited Condo Space Is Main Deal Breaker
As real estate agents point out, parents’ behavior hurts more than it helps when it comes to closing a deal and buying a home. The main reason behind their counterproductive approach seems to be that parents are shocked by the evolution of both the prices and the sizes of condo units. Since most of them are part of the Baby Boomer generation, Millennials’ parents have probably had only tangential contact with the real estate market since they themselves bought their homes, several decades ago.
Therefore, the staggering prices (the average price for a condo in Toronto in 2017 surpassed the $500,000 mark) are something of a rude awakening, especially since what they consider an enormous amount of money only seems to provide cupboard-sized living spaces and miniature appliances to match.
The Odds Favour the Sellers, Buyers Are Forced to Compromise
In Toronto’s real estate market, however, extremely limited space and robust demand means the odds are in favor of the sellers; buyers who are looking for condos that are both spacious and affordable are bound to be disappointed.
As one agent pointed out, buyers are caught between a rock and the proverbial hard place because they don’t really have a say in the matter: “It’s tough for buyers. You can’t be coming in and telling the seller how it’s going to be, because they don’t care”, states Scott Shallow, a Brad J. Lamb sales rep.
With so many disadvantages, it’s no wonder agents are already witnessing a counter-trend: some Millennials specifically refuse financial aid from their parents, although that help could ensure wider possibilities. No matter what path they choose, financial independence might take longer to achieve nowadays.
This article first appeared in The Star