Homebuyers rely on bigger gifts from parents

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Parents giving money to their kids to buy a home took off during the pandemic when real estate went through the roof.

But has today’s cooler housing market changed that?

Not really, says a new study by CIBC Capital Markets economists Benjamin Tal and Katherine Judge.

Since 2015, the share of first-time homebuyers who received financial help from family members rose from 20 per cent to 31 per cent, and though that trend has levelled off in recent years, it has not declined.

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“Homebuyers relying on a wealth transfer from their parents in order to purchase a home is becoming the norm in Canada,” said the economists.

Moreover, the amount of these gifts has continued to climb, rising 73 per cent higher than in 2019. The average gift nationally now sits at $115,000.

“While the benchmark home price has fallen by 14 per cent since its COVID-era peak, prices are still 33 per cent above pre-COVID levels, and that means that gifts have risen faster than home prices over that period,” said the study.

Parental support is especially apparent in Ontario and British Columbia, where high home prices have necessitated a higher reliance on family help.

In these provinces, 36 per cent of first-time homebuyers receive a helping hand, five percentage points higher than the national average.

The size of the gifts in British Columbia, Canada’s priciest market, has soared 90 per cent since 2019, well above the national increase of 73 per cent.

Parents here on average are giving their children $204,000 towards a first home.

Even Ontario is tame by comparison. The amount of gifts in this province — where real estate is far from cheap — rose just 52 per cent since 2019 and now sits at $128,000.

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A recent study by Ratehub.ca on how much income is required to buy a home offers clues to why family gifts continue to rise.

Affordability worsened in 11 of the 13 cities the study covers between April and May as homebuyers faced higher mortgage rates and rising home prices in most cities.

In just one month, the income needed to buy a home in Victoria, B.C., rose $1,230 to $172,180 a year.

Vancouver’s required income hit $232,950, up $800.

Hamilton, Ont., saw the biggest increase, Homebuyers now need an income of $171,100 to afford a home here, up $1,550.

Toronto was the exception. The average home price here fell $5,900 between April and May, meaning that homebuyers required $1,250 less annual income.

But the $215,920 a year you need to afford a home in Canada’s biggest city is still out of reach for many.

Wherein lies the problem. Not everybody’s parents can afford to help their children onto Canada’s very expensive property ladder.

Tal and Judge point out that while the phenomenon of parental gifts is helping to ease the bite of housing inflation, it is also widening “the already wide wealth gap in Canada.”

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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