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Growing role of families in homebuying raises important questions
November 8, 2017 | Posted by: Aaron Baxandall
Content from: Mortgages report November 1, 2017 Globe and Mail
The Canadian dream of owning a home is alive and well, and it is something the different generations agree on. But is it out of reach for young people, especially when they live in areas with ballooning house prices? A recent survey shows that while a number of Canadians are delaying their home-buying plans, others find creative ways of entering the market, and for some, this means counting on support from their families.
'In our research, we found that over 80 per cent of Canadians think that a home is a good investment,' says Nicole Wells, vice-president of home equity financing at RBC. Yet the number of Canadians planning to buy a home within the next two years has decreased to 25 per cent, from 29 per cent in 2016, according to the 2017 RBC Homeownership Poll.
Among the top reasons why Canadians delay buying a home are a belief that house prices may come down, uncertainty about the economy and concerns about affordability. Especially in markets like Toronto, Vancouver and a few smaller communities, high real estate prices mean it could take new homebuyers multiple years, even decades, to save enough for a down payment.
Fortunately, a growing number of young people can count on their parents' help, says Ms. Wells. 'We are seeing that 18 to 25 per cent of parents play a substantial role in helping their children get into homes, not just for first-time homebuyers but also next-time homebuyers. People get creative in finding different ways to lend support.'
Across Canada, an average of 18 per cent of parents are helping their children buy a home. In Vancouver, this percentage is as high as 40 per cent, she explains.
For families that plan to help their children, Ms. Wells suggests setting a number of ground rules. 'Parents have to first look at their own situation, including their plans for retirement, and consider how the decision to help out financially can impact them down the road. There could be hard feelings in the future if they feel they are not living the life they want because of long-term financial commitments,' she says. 'Having these kinds of discussions up front – and articulating expectations clearly – can give families a good place to start from.'
Questions that families should explore include the parents' expectations for being paid back, for example, or their preferred level of involvement in decisions regarding the property should they choose to own a share, says Ms. Wells. She also recommends talking to a financial planner or adviser for a better understanding of the financial situation of all family members.
Ms. Wells adds that financial assistance is not the only way parents can help. 'There are a lot of things parents can do besides financial support,' she says. 'Parents often have been through the home-buying process before, and can provide access to resources, such as real estate agents, mortgage experts, as well as advice on what to expect with homeownership and the actual cost of carrying a home beyond just the mortgage.'
Potential homebuyers need to be able to carry the costs, including property taxes, maintenance, mortgage payments and other associated expenses, she says. 'It's easier to bring up these issues at the beginning rather than see your family members in a situation where they are struggling to get by.'
Purchasing a home may mean making compromises when considering 'neighbourhoods versus price tags,' says Ms. Wells, and even a smaller starter home can allow a young person to get into the market and help build equity.
RBC has created a number of tools that can help clients determine whether the time is right to buy as well as what home they can afford. The True House Affordability calculator, for example, potentially allows customers to pre-quality for a mortgage in 60 seconds, according to Ms. Wells. 'It gives homebuyers a good understanding of the range of house they can afford,' she says. 'For people who want to move up to their next home, we have tools that help them see how much their current home is worth to decide whether they should stay or go.'
While conditions for homebuyers may have changed, especially in hot markets, the fundamentals have stayed the same, says Ms. Wells. 'It has to start with a look at how much you can afford.'
