Do you plan to provide financial assistance to your kids when the time comes for them to make their first home purchase? You wouldn’t be alone.
The Housing Affordability Survey, a Leger poll of more than 1,500 Canadians, commissioned by FP Canada, discovered that 48% of parents with children under 18 years of age intend to assist with the purchase of a first home. Just under a quarter of parents with children older than 18 have already helped with a home purchase.
The survey found that older parents in the 55+ range were more likely to assist with a home purchase (27% compared to 15% of parents under 55 years old). Parents in Atlantic Canada, Manitoba, and Sakatchewan were more likely to financially assist their children’s first home purchase. Urban parents were also more likely to help with a home purchase compared to rural parents.
“With house prices at unprecedented levels in many regions of the country, it’s nearly impossible for many young Canadians to get into the market without assistance from their parents. That’s putting pressure on parents to take drastic steps to help their children buy a home, including tapping into their retirement savings or their own home equity,” says Kelley Keehn, author, personal finance educator and Consumer Advocate for FP Canada. “Even though it’s natural to want to help your children, it’s essential to carefully consider the impact on your own financial security before helping with such a huge purchase. A CFP professional can help you build a plan to balance all your financial priorities.”
Nearly 40% of parents said that helping their kids with a home purchase would cause them to postpone retirement, and 30% of them intend to tap into retirement savings, and 26% plan to tap into their home equity.
It’s not just the housing market that’s proving unaffordable. The rental market in some areas is too expensive for young Canadians. The average one-bedroom condo in the Greater Toronto Area leases for well above $2,000. How many people in their early 20s can afford that?
That’s why it’s not surprising to hear that 36% of parents with children under 18 plan to help with rent in the near future. You can trust this stat because 35% of parents with children older than 18 have already helped their kids with rent.
This survey somewhat echoes a recent study about how the housing market would have to change in order to accommodate the average millennial. In Ontario, for example, the average price of a home would have to fall more than $300,000 for someone aged 25-34 to afford it, or their household income would have to miraculously double to $109,000.
Clearly, home price growth is outpacing salaries/wages, so those fortunate enough with parents to help them may receive assistance. But what about those who don’t have assistance from family or friends? How are they going to afford a home in an expensive market like the GTA?