Housing price increases have outpaced inflation for years, pricing many Millennials out of the housing market. For many Millennials, the solution has been to remain at home for years longer than their parents planned. In fact, roughly a third of those between the ages of 18 and 34 live with their parents; slightly more live with their parents than with a spouse and/or child, a seismic demographic change. The remainder is made up of singles living alone and with roommates. Nor can we say this is just because college is more common for the current generation. Analysis of census data found that at least 15% of those 25 to 35 are living with their parents. In 2001, the percentage of adults between 20 and 34 living with their parents was 34%, a roughly 10% increase from the 31% doing so in 2011. Conversely, the lower rate of new household formation helps trap many millennials there since it is cheaper for them to live with parents and save or pay down debt, while their own parents are unlikely to downsize the family home as long as their child needs a subsidized place to live.
What are the options for Millenials to leave the nest? One solution is renting, though that can be expensive in markets like Vancouver and Toronto. A few worry that high housing prices will leave Millenials renters forever. If one is living in a more affordable housing market like Alberta, then it is possible to save up the difference toward a down payment on a new home. Renters benefit from their ability to move wherever work takes them.
Another option is turning to the Bank of Mom and Dad. An HSBC Bank of Canada survey found that nearly 40% of Millenials who bought a home relied on their parents as a source of funding, though that doesn’t have to mean they took out a mortgage with their parents. A common solution was Mom and/or Dad cosigning the mortgage. This allowed them to qualify for a lower interest rate on the property. However, you should consult with a Calgary Mortgage Broker to find the best rate before entering a de facto business relationship with your parents.
A partial gift or full gift of the down payment for the new home was another common tactic. Parents may see this as an early inheritance, a gift to get their kids out of the house and started in life, or a way to get the adult child out of the house so they can sell it and downsize. Parents typically sign or help with the deposit but leave the mortgage and bills to the adult child. The high demand for this type of cash infusion has led the Canadian Real Estate Association to increase the withdrawal limit for tapping one’s retirement savings to help children buy a home by $10,000. The CREA is asking that the Home Buyers’ Plan be extended to permit intergenerational RRSP loans.
In a few cases, the parents actually assist with the purchase of the home and join in the mortgage while forming multi-generational households. That mortgage helper in the basement becomes a mother-in-law suite, while the extended family remains close. Or a secondary home is built on the property, serving as a home for relatives now and providing rental income in the future.
