Recent reports on the frenzy in the real estate market have often referenced a somewhat surprising element: Millennials have largely been driving the rush.
It’s surprising because it wasn’t long ago millennials were being cast as victims of the wild surge in house prices across the country. Foreign buyers were being blamed for not just the gross spike in prices but also for robbing tens of thousands of young Canadians of their middle-class dreams of home ownership.
Today, it would appear it’s millennials, not investors from mainland China, largely responsible for the head-spinning amounts of money being put down on properties. And there is likely a perfect explanation.
The great wealth transfer is under way.
It’s no secret baby boomers (now between the ages of 57 and 74) are sitting on a pile of money. In the U.S., they are expected to transfer as much as US$30-trillion in wealth to younger generations over the next few decades. While there is no firm consensus on how much boomers are expected to leave behind to others here in Canada, it’s a good bet it will be in the hundreds of billions if not more.
The Rennie Marketing Group of Vancouver for some time has been tracking this phenomenon as it relates to real estate holdings. The numbers are truly mind-blowing.
In 2006, the total value of real estate in Metro Vancouver that was held mortgage-free was estimated to be $123.8-billion. At the time, just under half (47 per cent) of this value – about $60-billion – was held by those between the ages of 55-74.
By 2021, the total value of mortgage-free holdings in Metro Vancouver has more than tripled to $373.3-billion – a 201 per cent increase. The share of that total held by those between 55 to 74 – roughly the baby boomers – increased to more than $205-billion, says Andrew Ramlo, vice president, consulting, for Rennie.
The biggest driver of that value gain has been housing; benchmark prices in the region have doubled since 2006. Another element has been demographics and the aging of the region’s residents into the mortgage-free stage of their life cycle.
The share of mortgage-free equity held by those 55-74 increased to 55 per cent in 2021, up from only 46 per cent in 2006. Boomers are paying off their home and now have a lot of money to play with.
And give away.
This likely explains why so many millennials are getting into the market – they are accessing cash from parents who have, in many cases, downsized and realized a significant differential between what they sold their single-family dwelling for and what they paid for their smaller townhome or condo.
“One hundred per cent, this has been a major factor in what we are witnessing now,” Mr. Ramlo told me this week.
He conjured a theoretical couple in their late 30s who had saved enough to qualify for a $500,000 condo. But then their parents come along with $100,000 to offer them. Now they suddenly have enough for a much more expensive condo without increasing the size of their mortgage.
“This is something that is increasingly going to have an impact on prices in the market right across the country,” said Mr. Ramlo. “It will also at least partially explain the disconnect we are seeing between median family income and the value of homes people are buying. That median income doesn’t take into account the pile of cash parents coughed up, tax free.”
Some of Canada’s banks have estimated that 50 to 60 per cent of young people applying for mortgages today have received assistance from parents. However, Mr. Ramlo said mortgage brokers he’s talked to suggest the number is much higher, probably closer to 90 per cent.
Once upon a time people waited until their parents died before they saw any inheritance. Not any more. Boomers are much more savvy and much less inclined to wait until they are gone, when their wealth can be taxed by the government.
“I think once the pandemic ends, and the bills are finally tallied up, governments are going to be looking for ways to pay for it all,” Mr. Ramlo said. “And I think they are going to be looking to tax wealth in some form or another. I think this could provide even more incentive for boomers to part with more of their money now, before the government takes it.”
For many boomers, that moment has arrived and the impact is being felt across the country. And it will for years to come.
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