If the headlines are to be believed, the GTA will be abandoned by millennials before long if residential real estate doesn’t become more affordable.
Millennials are generally considered to be those people born between 1980 and 2000 (though you can find lots of variations on the exact dates). With the eldest of them in their 30s, many millennials are well established in the work force, and ready to buy their first home. But, if there is any downside to healthy real estate prices, it is that it can be difficult for people to get into the market for the first time.
The Financial Challenges Faced by Millennials
A quick look shows that millennials are maturing in the midst in a number of societal changes that could affect anyone’s ability to invest in a home.
1. Student Debt
A higher percentage of millennials pursued post-secondary education opportunities in colleges, universities and private educational institutions. The high demand for higher education has produced two burdens on millennials. First, tuition rates are increasing almost yearly and are at record high levels at almost every post-secondary institution in the country.
The second problem posed by the high cost of higher education, and the sheer number of millennials who pursued it, is that there is now a higher number of graduates who carry a higher debt load due to student loans and other costs incurred in getting their education.
In 2016, average student debt in Canada crept above $25,000 for the first time. It means that those entering the work force are doing so under debt burdens unheard of in previous generations. Debt delays the accumulation of wealth needed to make a down payment on a new home.
2. Emergence of the Gig Economy
It’s a sexy name for something that puts even more financial pressure on millennials. The ‘gig’ economy is another term for the trend towards part-time and/or freelance work versus full-time careers.
In 2016, Canada enjoyed the best jobs growth rate in four years. But the bulk of the new jobs, 153,700 out of 214,100, were part-time positions. And if it wasn’t for an 81,300 surge in full-time positions in December 2016, the largest one-month increase in five years, there would have been negative growth in full-time jobs last year.
Part-time positions, often in sectors like retail and unskilled labour, are notably lower paying than full-time work.
3. Record Real Estate Prices
There’s no denying it. Everyday brings a new news story of home prices reaching new heights.
Why Home Ownership May Not Be as Difficult as It Seems for Millennials
While there’s ample evidence that millennials face new challenges in purchasing their first home, a look back at some of what their parents and grandparents went through when they first got into the market can tell similar tales of woe.
Even more, no one talks about the advantages that millennials enjoy, including one that is almost as record-breaking as residential real estate prices.
Average Home Prices Increasing at a Relatively Moderate Rate
While the prices of homes are at record highs, the increases in annual average home prices over the past 25 years pales in comparison to some of the increases that millennials’ parents and grandparents experienced in the 1950s, 1960s, 1970s and, most notably, the late 1980s.
A look at the chart below of percentage changes in average Toronto home prices for the last 50 years shows that the 17.1% increase in 2016 is less than half of the increases that occurred in 1987 and 1974, and still below the percentage price increase way back in 1954.
That means, while millennials face high prices, they should be more prepared for them than their parents and grandparents could ever have been.
Two More Real Estate Advantages Millennials Enjoy
There are two other major advantages in the real estate market that millennials enjoy over previous generations.
1. Larger Supply of Condominium Units
While some might prefer a detached, semi-detached or townhouse, millennials have an option for lower-cost entry into the housing market that is more common than in previous generations. Condominium buildings have been built in Markham and the rest of the GTA in record numbers over the past decade.
2. Near-Record Low Interest Rates
For the past eight years, mortgage rates have been at their lowest levels in over 80 years. So while millennials face record real estate prices, the cost of borrowing to buy a home is at near-record lows. (Mortgage rates were over 20% in 1982)
No one is trying to say that getting into the real estate market does not have its challenges, but they are not unique to today’s first-time buyers. And there are many opportunities too.