The spring home-buying season is upon us, that time of year when we Canadians covet houses we can't afford. Not only do we revel in our financial pain, but we cast a jaundiced eye at other homeowners, especially baby boomers, who seem to have acquired their stately homes with relative ease.
We all have bouts of real-estate rancour. As a member of Generation X, my dream of owning a detached house in Toronto was dashed long ago. But your generation's housing market FOMO (that's fear of missing out, for the boomers out there) is soaring. First, the boomers weren't downsizing fast enough. Now, if the real estate industry is to be believed, new mortgage rules are to blame for pricing millennials out of the market. The Ontario Real Estate Association has called it a "war on first-time homebuyers."
But don't let those self-serving shills egg you on. There's no conspiracy to sideline young buyers. Canada's banking regulator had good reason to toughen up the rules. Runaway home prices, record household debt and rising interest rates are creating a powder keg. If it blows, we'll all get hit.
The new rules, which took effect Jan. 1, are designed to root out risk in uninsured mortgages. To avoid costly mortgage insurance, buyers need at least a 20% down payment. Now, those prospective homeowners will also have to pass a stress test, showing they can afford payments if their mortgage rate goes up to the Bank of Canada's average five-year benchmark, or their contractual rate plus two percentage points—whichever is higher. That stress test could disqualify up to 10% of prospective buyers, according to the central bank.
It might seem heavy-handed to target borrowers who've saved up a big down payment. But those mortgages don't come with a backstop if homeowners fall behind on their payments. That's a growing risk now that the Bank of Canada has hiked its key policy rate three times since July. Unfortunately, that has created a higher bar for some new buyers.
No one is denying it was already difficult to buy a home. And yes, it's proving harder for you than for your parents. As of 2016, 50.2% of millennials owned a home at age 30, versus 55.5% of 30-year-old boomers back in 1981, according to Statistics Canada. More of you live in apartments now than your folks did at the same age, and fewer of you can afford detached homes. Most depressing of all? More than a third of you between the ages of 20 and 34 were still living with your parents as of last year, a trend that's been increasing since 2001.
But here's the unvarnished truth: If you don't qualify under the new mortgage rules, you're not ready to own a home. So take advantage of the fact that you're crashing in your parents' basement and keep saving. Or aim to buy smaller digs.
I know this isn't what you want to hear, especially from someone on the wrong side of 40, but delayed gratification is a good thing.
From where I sit, your angst is all for naught. Millennials won't miss out on home ownership. You're a highly educated bunch about to reap the benefits of a massive societal shift. Your boomer parents are starting to retire, giving you more opportunities in an already healthy labour market. Businesses are anxious to attract and retain you as employees. Even the youngest among you, those between the ages of 15 and 24, had an easier time getting a job last year, according to Statistics Canada. There are also signs that wage growth is finally starting to pick up.
Perhaps best of all, you're about to in-herit a windfall, if you haven't already. It's been estimated that Canadian boomers will transfer $1 trillion to their kids between 2015 and 2035. That means an average of $50 billion will be passed down each year, according to a study by consulting firm Capco. About half of that jackpot will go to millennials.
You'll have banks falling over themselves to court you—heck, you already do. And unlike my generation, which is largely overlooked, you have the ear of politicians. Use your clout to push for solutions to make housing more affordable, such as freeing up more land, enforcing pay equity and lowering income taxes.
So, you see, buying a home is not permanently out of reach. The new mortgage rules are a necessary dose of tough love. Somewhere along the way, we became a country of spendthrifts, and we all need to show some restraint. So suck it up, buttercup. Not everything is about you.