Buying a home for the first time in some of Canada’s largest cities presents greater financial challenges now for Millennials than it did in the past for Baby Boomers. However, mid-sized cities – such as Halifax – offer similar conditions today as they did nearly 40 years ago.
Nowadays, first-time homeowners are not as interested in suburban neighbourhoods as they used to be. While proximity to urban centres and a wide range of amenities appeal more to Millennials than they did to Baby Boomers, the price of living in the suburbs is also out of reach. Consequently, affordability issues and a low supply are forcing the younger generation to ditch detached homes in the suburbs in favour of smaller, cheaper condos that may be far from city centres.
To compare what Millennials are able to afford now with what Baby Boomers could afford when they bought their first homes, HuffPost Canada built profiles of the first-time homebuyer neighbourhood in three Canadian cities: Halifax, Toronto, and Vancouver. By analyzing data on housing construction, first-time homebuyer incomes (ages 25 to 34) and house prices, they created profiles for 1977 (1980 for Halifax) and 2017.
While prices have skyrocketed, falling interest rates have balanced the mortgage payments. Monthly payments – adjusted for inflation – are similar to what they were 40 years ago. Additionally, the insured mortgage decreased from 10% to 5%, easing the process of buying a home for first-timers.
Millennials in Halifax Get Almost Same Deal as Baby Boomers
In Halifax, the situation hasn’t changed drastically from 40 years ago. Even first-time homebuyers with an average income can aim for a detached home. In 1980, first-time homebuyers earned an average income of $62,000 (in 2017 dollars). Back then, the maximum purchase price was $288,000, and the average selling price of a property was $159,900. Suburban homes were typically 1,560 square feet in size.
Furthermore, prices for homes in Halifax have only doubled since 1980 – as compared to Toronto and Vancouver, where prices tripled. With an average income of $58,000, first-time homebuyers in Halifax can still afford a detached home at an average selling price of $297,000. The maximum purchase price is $430,000, and the size of the average home also increased to around 2,340 square feet.
First-Time Homebuyers in Toronto & Vancouver Have to Settle for Less Space
The study found that in Toronto and Vancouver – the priciest cities in Canada – first-time homebuyers could afford about one-third as much space as their parents could.
In the 1970s, the average selling price of a home in the Toronto real estate market was $247,000. With an average income of $73,500 (in 2017 dollars) and a maximum purchase price of $340,600, you could afford a 2,070-square-foot suburban dwelling. But now, the typical first-time homebuyer earns $82,500 and the average price of a home is $794,000. With a maximum purchase price of only $505,000, Millennials are limited to smaller condos in high-density neighbourhoods.
The situation in Vancouver is similar. In 1977, with an average income of $79,600 (in 2017 dollars), you could afford a home at the average selling price of $306,000. The maximum purchase price was $369,000. As a result, first-time homebuyers were able to afford a 2,180-square-foot property in the suburbs. Nowadays, homes in Vancouver have an average selling price of $998,000. However, with a $75,000 average income and $500,000 maximum purchase price, the average first-time homebuyer will have to settle for an 800-square-foot condo on the outskirts of the city.
Millennials Might Have to Wait 35 Years to Afford a Home
The affordability gap between Baby Boomers and their children is staggering. Across Canada, it could take Millennials up to 35 years to save enough money for a 20% down payment on an average-priced home. Conversely, in 1976, the first-time homebuyer needed to save for only five years before making a purchase.
Considering the low supply and affordability issues, putting some money aside and setting realistic expectations could help Millennials as they plan to buy their first homes.