Realtors, lenders and everyone else living off hot housing, thank a parent today for helping to keep prices on the rise in cities across the country.
Manulife Bank issued survey results on Tuesday that suggest 45 per cent of millennial home buyers received a gift of money or a loan from family. That compares with 37 per cent for Gen Xers and 31 per cent of baby boomers. One-third of the people receiving financial help recently got more than $25,000.
Parents are simply doing what parents do – helping their kids out and perhaps making sacrifices to do so. But there are signs parents may not grasp the full extent of the affordability challenges of not only buying a house, but also owning one. Ask this if you're a parent helping your millennial kids buy a home: What am I getting them into?
Rob Carrick: Five financial realities that millennials have never seen (but be prepared)
Family help has been a constant in home buying for generations. But now, it's subsidizing close to half of house purchases by young first-time buyers. There couldn't be a clearer illustration of how surging house prices are reducing affordability for young adults.
As a society, our response to this phenomenon is that everyone has to try harder to get young people into houses. Parents have to help their millennial children and those kids have to stop wasting money on anything but house down payments. This is the conclusion to be drawn from the meme of avocado toast, which is basically mashed avocados on toasted bread. Apparently, millennials like avocado toast and pay good money for it when dining out. A narrative, which began on social media, is emerging that spending on luxuries such as this is preventing millennials from being able to afford homes.
I highlighted one instance of this in the Carrick on Money e-mail newsletter last fall (subscribe here). Last week, avocado toast was cited again. A millionaire Australian real estate mogul named Tim Gurner said that when he was trying to buy his first home, he wasn't spending money on fancy restaurant food and coffee. Media everywhere picked up on the story.
Some will see avocado toast as a metaphor for millennial self-indulgence. But the fascination with this storyline says a lot more about society's trivial understanding of millennials than it does about these young adults themselves.
Avocado toast is not the problem in today's housing market. The average Toronto-area house price jumped $181,709 over the 12 months to April 30. That's 12,114 orders of avocado toast at $15 a crack, or 33.2 orders a day over a year. This brings us back to parental financial help for millennial home buyers. The need is obviously there, but so is the danger of getting millennials into a situation they can't handle in a financial sense.
As the Manulife survey notes, the increase in parental support for millennials compared with previous generations comes despite a long-term trend toward two-income families. Over the past 40 years, the number of families with two employed parents has doubled. Families often need two incomes to afford a house today.
There's also a high incidence of precarious work in the millennial generation, which means a lot of people are working contract or temporary jobs. This leads to inconsistent or variable incomes, a problem documented in a recently issued survey that was sponsored by Toronto-Dominion Bank.
Almost 40 per cent of participants said they have experienced moderate to high levels of income volatility in the past year, and two in 10 put themselves in the high or very high category. TD's summary of the results said people who experienced high or very high levels of income variability are more likely to see themselves as falling behind financially and more likely to report feeling stress about money.
Manulife's survey reinforces the idea of millennial homeowners being financially vulnerable. Almost one-third of millennials found themselves without enough money in their bank account to cover expenses at least once over the past 12 months, compared with 28 per cent of Gen Xers and 17 per cent of boomers. Millennials were also more likely to say they'd run into trouble making a mortgage payment if the prime earner in their household became unemployed.
Unless your adult children are well positioned, helping them into the housing market could be toxic to their finances. You may be better off encouraging them to rent and giving them money to put into the investment portfolio they'll use to generate an amount of wealth similar to homeowners'.
Rob Carrick