A new report released today by Mustel Group and Sotheby’s International Realty Canada highlights the impact of escalating costs of living on young families across the country’s major metropolitan real estate markets. The report sheds light on the financial challenges faced by urban Canadian families, including the decision between saving for a home versus saving for retirement, and provides insight into how those obstacles are being overcome.
Mustel Group and Sotheby’s International Realty Canada’s “Modern Family Home Ownership Trends Report: Financing the Canadian Dream” found that for “modern family” homeowners in every metropolitan area surveyed, the main obstacle to saving for a home is the cost of basic living expenses, cited by 33% as their top challenge. Many are also undertaking significant financial, career and personal measures to successfully attain home ownership. A notable 20% of modern family homeowners delayed saving for retirement, 19% secured a job with a higher salary while 14% added a part-time or freelance job to full-time work. 12% chose to delay the decision to have a child in order to save for a home, and 9% moved back in with family.
Survey findings also reveal how young urban family homeowners utilize diverse strategies and funding sources to build their down payment. The most common sources of funding are personal savings or cash (used by 71%), a financial gift, inheritance or living inheritance (52%), borrowing from RRSPs (31%) and proceeds from the sale of real estate (25%). For the majority that benefitted from a financial gift, those funds comprised less than 30% of their down payment.
Basic Costs of Living: The Greatest Barrier to Saving for a Home
- Across Canada’s key metropolitan areas, young, urban families identified the cost of covering basic living expenses, such as rent, groceries and utilities, as their leading financial barrier to saving for home ownership.
- Overall, 33% of homeowners reported this as their primary obstacle. Rates exceeded this average in Calgary (38%), Vancouver (37%) and Toronto (35%). 25% of families in Montreal reported basic cost of living as their greatest challenge, significantly below the national average.
- Other frequently cited barriers to saving for a home purchase include paying for non-essential lifestyle expenses such as dining out, travel, entertainment, fitness memberships (14%), paying off credit card debt (8%), saving for retirement (6%) and paying off student loans (6%).
Home Saving Strategies: Superficial to Significant
- While minimizing or reducing non-essential lifestyle spending is the most common measure taken by modern family homeowners when saving for a down payment, findings from the Mustel Group/Sotheby’s International Realty Canada survey reveal that many are also undertaking significant, and at times severe, financial, career and personal measures to attain home ownership.
- 51% reduced or eliminated dining out, 45% reduced or eliminated travel and vacations, while another 45% sacrificed personal expenditures such as clothing or technology purchases. As part of their efforts to save for a home, 37% of families reduced or eliminated health and fitness expenditures and 15% reported reducing or eliminating car ownership.
- Across the metropolitan markets surveyed, a significant 20% of urban families reported that they delayed saving for retirement in order to save for a home purchase instead. 19% secured a job with a higher salary while 14% added a part-time or freelance job. 12% chose to delay the decision to have a child in order to save for a home, while 9% moved back in with family.
Retirement Savings vs. Home Ownership
- Results from the Mustel Group/Sotheby’s International Realty Canada survey reveal the degree to which young families are challenged with the choice between buying a home and saving for retirement.
- Even as 20% of modern family homeowners postponed retirement savings in order to achieve home ownership, another 31% withdrew funds from their RRSPs for their down payment. Under the federal government’s Home Buyers’ Plan, first time home buyers may withdraw $25,000 of RRSP savings to finance the down payment on a home without tax penalty if the amount is repaid within 15 years.
Financial Self-Sufficiency vs. Reliance on Outside Support
- Personal savings is the leading source of down payment funds for modern families across the Canadian metropolitan areas surveyed (71%). 52% reported financial gifts, living inheritances or inheritances as a down payment source, while 12% cited a personal loan from family and friends.
- 31% borrowed from RRSPs. 25% of families utilized proceeds from the sale of previously owned real estate towards the down payment of their home, while 11% applied proceeds from the sale of financial investments such as stocks and bonds.
- 11% relied on borrowing through a secured loan for their down payment, and 8% leveraged credit card borrowing.
The Impact of Financial Gifts
- While a slight majority (52%) of modern families who purchased real estate in Canada’s major metropolitan areas relied on a financial gift, living inheritance or traditional inheritance as part of the down payment, 48% bought their home without any such assistance.
- The proportion of funds received as a financial gift comprised less than a third of the total down payment for a significant share of families. 14% of responders indicated that a financial gift comprised less than 10% of their total down payment, while 10% of responders indicated that a financial gift comprised 10-19% of the down payment. 12% of families surveyed reported that a financial gift contributed 20-29% to their down payment.
- 17% of survey responders reported receiving a financial gift that made up 30% or more of their down payment.
Real Estate Market Confidence
- As previously reported by Mustel Group/Sotheby’s International Realty Canada, confidence in the real estate market remains high amongst young urban Canadian family homeowners in spite of the financial challenges of purchasing a home.
- 78% believe that their home will either outperform or match the performance of their financial investments in the next five years.
- 48% maintain that real estate will outperform financial investments.
The report is based on findings from an online survey of 1,743 families in the Vancouver, Calgary, Toronto and Montreal Census Metropolitan Areas (CMAs), with a focus on those where the adults are between the ages of 20 and 45. Over half of survey responders are Millennial homeowners, while the remaining represent homeowners from the younger segment of Generation X. The sample was weighted to match Statistics Canada census data on the basis of age, household income and home ownership within each CMA and to bring the total sample into proper proportion based on relative populations. While margins of error only apply to random probability samples, the margin of error on a random probability sample of 1,743 respondents is ±2.3 percentage points, 19 times out of 20. Data for this report series was gathered from August 9 to September 6, 2018.
Download the 2019 Modern Family Home Ownership Report (released February 2019)
About Mustel Group Mustel Group has been a leading market research and public opinion research firm in Canada for more than 30 years, trusted by a wide range of the country’s most esteemed public and private sector institutions to design and conduct qualitative research, quantitative research and omnibus surveys in order to understand the thoughts and motivations underlying peoples’ emotions, opinions and behaviours. For further information, visit www.mustelgroup.com
Disclaimer* The information contained in this report references survey results, plus market data from MLS boards across Canada. Sotheby’s International Realty Canada cautions that MLS market data can be useful in establishing trends over time, but does not indicate actual prices in widely divergent neighborhoods or account for price differentials within local markets. This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information and analysis presented in this report, no responsibility or liability whatsoever can be accepted by Sotheby’s International Realty Canada, Sotheby’s International Realty Affiliates or Mustel Group for any loss or damage resulting from any use of, reliance on, or reference to the contents of this document.