Millenials and the Housing Market

Canada’s housing market remains strong despite the economic downturn, and more millennials are buying with Calgary’s ever-growing communities. Though the average housing prices are increasing, it’s the selection of homes and the buying incentives from builders that keeps the buying market strong.

The average price of a single-family home in Canada, in 1996, was $150,899, which seems pretty affordable.  Now – 20 years later, in 2016, the average price is up by 66 per cent at $442,264, per the Canadian Real Estate Association (CREA).

The term, “millennials” colours the idea that more and more 20- to 30-year-olds are living at home for as long as they can when, in fact, the latest study on consumer housing trends from Zillow finds that about half of home buyers are under the age of 36. The market is also comprised heavily of first-time buyers: 47 per cent of those buying and 63 per cent of those selling a home are doing so for the first time.

Unsurprisingly, in a market where home prices are reaching all-time highs, homeownership remains a challenge for many. More than half of home buyers didn’t get the first house on which they made an offer. And even though 56 per cent of buyers saved over time for a down payment, 32 per cent found that their savings were not sufficient to buy a home and had to use other sources, per CREA.

Steve Thirlwall, 25, from Calgary, still lives in his parent’s basement but has decided to skip the renting phase all together, instead opting to buy his first home.

“The search for a REALTOR® and getting approved was quite easy, though finding the right home in the right community has been difficult.”

Thirlwall says that because most “regular” single-family homes run for “half a million or more”, finding a house that isn’t the size of an apartment for a reasonable price has been the challenge.

“From the beginning of our search we were adamant about saving the 20% down payment to avoid the CMHC fee. The hardest part was the two years of saving and waiting before we felt we could afford a house.”

Though the bright side of these challenges is the opportunity to afford in the some of the communities that may not have been an option before.

On average, first-time buyers spend $263,310.34 on their home—18% less than repeat home buyers, who spend about $309,389.65. Millennials are also buying homes that are only slightly smaller, at 1,800 square feet, than those purchased by Gen-Xers and Baby Boomers, whose homes are on average 2,000 square feet, per Time.com.

Laura Bruce, 25, from Calgary, has owned her townhome in southern Calgary for two years, stating the process of finding her humble abode was “a lot of leg work” since Bruce and her fiancé Ryan Nephew didn’t hire a REALTOR® and had ended up going with a new build.

“The building process was easy once we had chosen. We found getting approved for a mortgage very easy. It was not until later we discovered sites like NewHomeListingService.com that makes it so much easier to find all of the Builders of new homes in one place.”

Bruce never faced any challenges in buying. “We found getting approved for a mortgage an easy process.”

A new poll by CIBC suggests home ownership is just as important to millennials as it is to most Canadians.

The survey shows 86 per cent of millennials view home ownership as important even though 42 per cent of them are renting and 21 per cent live with their parents. Overall, according to the poll, 85 per cent of Canadians consider home ownership a priority.

Of those, 63 per cent say it makes financial sense to build equity and save for retirement while 59 per cent of millennials in the 18-34 age group say home ownership provides a sense of personal freedom. Conversely, 15 per cent of Canadians say home ownership is not important, with nearly half saying it’s too big of a financial burden.

“We were keen to buy a house, as it’s a smart investment and wanted to build our own equity rather than pay rent,” Bruce said.

When asked if buying in your mid-twenties in 2016 is easier than it was 1996, she says it depends on challenges faced – there could be many factors.

“I think it’s harder as your purchasing power is less than it was 20 years ago, however, with lower mortgage rates and less down payment required it may make it easier for homebuyers now.”

Barry Gollom, vice president of mortgages and lending at CIBC, says it’s a myth that millennials don’t want to own their own home, per Huffington Post.

“In fact, our poll suggests that millennials place as much importance on being a home owner as Canadians in other age groups,” he said.

“Home ownership is an important milestone to many, and that hasn’t changed even though it has become increasingly difficult to get into the market.”

What is a Millennial: Millennials, also known as Generation Y or the Net Generation, are the demographic cohort that directly follows Generation X.  Howe and Strauss define the Millennial cohort as consisting of individuals born between 1982 and 2004. (Source: http://whatis.techtarget.com/definition/millennials-millennial-generation)
Adrianna Thebault is the Marketing Communications Manager at NewHomeListingService.com, “The Most Trusted Newly Built Home Directory in Canada”

Tips for Adding an Income Suite to Your Home

Wish your mortgage payment had less of an impact on your finances? One way to offset mortgage carrying costs is to re-purpose part of your home as a rental – and with house prices bypassing the $1 million mark in many of Canada’s cities (such as the Toronto, Vancouver and Calgary real estate markets), this is becoming a common tactic for home-buyers and owners.

For those who want to afford more than a townhouse or condo but have limited affordability, the income from a rental suite can effectively help them move up in the market. It’s a practice encouraged by the Canada Mortgage and Housing Corporation (CMHC), because it contributes to affordable rental options within cities. As it states on its website, “Not only are secondary suites a source of affordable rental housing, they can also provide the needed extra income to first-time buyers for whom that additional income makes housing affordable in high-cost areas.” The CMHC also recently passed rules to make it easier for homeowners with suites to borrow, allowing 100% of their gross rental income to be considered when they apply for a mortgage or loan.

But renting out an income suite also means assuming the role of landlord – something many homeowners have no experience with.

Here’s what you should consider when renting out an income suite.

Make Sure Your Rental Suite Follows the Rules

In order to be considered a legal secondary suite, the rental must fit the following criteria:

  • It must have its own separate, private entrance
  • The unit must have its own kitchen, living and sleeping areas, none of which are shared by the landlord
  • There may be only one rental unit per home, and only single detached residences qualify (there are other rules that govern rentals in rowhouses).
  • The unit must meet the safety and fire codes as outlined by the Residential Tenancy Act (RTA) in your province
  • You must live in an area or zone where secondary suites are allowed

If you’re buying a home that already has a suite included, it’s important to know if it’s up to code, or includes illegal or shoddy work. You’ll have to update it with new renovations if that’s the case. This can especially be an issue in older homes, where units may have been built prior to new regulations, or require updates to their wiring and insulation in order to adhere to fire code.

Get Your Landlord Business in Order

Being a landlord isn’t an easy task; not only will you need to market your unit to prospective tenants, but you’ll be fully responsible for maintaining it and keeping it in safe, livable condition. For example, if the appliances stop working or the sink backs up at three a.m, you’ll need to deal with the situation ASAP, and will be on the hook for all costs and labour.

Running a rental unit is also more involved than picking your tenant and collecting a rent cheque each month. You’ll need to report the rent as income on your taxes, though you may be able to write off some expenses associated with it. Hiring an accountant to help you keep track of your assets and expenses is a good idea – and they’ll also be very helpful should you sell your home and need to report your capital gains.

It’s also important to know your landlord rights and legal requirements in your province as they can differ across Canada. Brush up on privacy laws, the CMHC’s Provincial and Territorial Fact Sheets, and your local legislation and RTA. Still not sure? Invest in a consultation with an experienced tenancy lawyer, who can answer any additional questions you may have. 

Prepare the Worst Case Scenario

While you may have been meticulous during your tenant selection process, disputes can – and will – happen. It’s important to know the processes for coping with such issues, and what it’ll cost you. If you’re unhappy with your tenant, you don’t have the power to simply turf them out, even if they’ve stopped paying rent. You’ll need to serve them with notice, apply for have a case for arrears opened, and may even need to have a tribunal hearing in order to resolve the issue.  This process costs time and money, and can jeopardize your finances if you’re relying on that rental income month-to-month. As with any smart financial plan, ensure you have a rainy day fund on hand to cope with unexpected repairs or loss of rent – just in case.

Plan for Life After Landlord

Do you intend to rent out your suite indefinitely, or is the goal to eventually reside in the entire home once on firmer financial ground? How many months, or years, will you need to keep the rental to recoup your costs and be profitable? Will you renovate your home to revert it back to a single-family residence when you’re no longer renting it out? As with any business, ensure you have a three, five, or even 10-year strategy in place. After all, it’s ultimately your home – so plan to enjoy it, along with all the responsibility.

Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier, and more successfully.