When it comes to renting versus owning a home in a city like Toronto, several questions have been posed in regards to Millennials. Are Millennials really opting out of home ownership based on philosophical principles, or is this an affordability issue?
Home ownership among Millennials seems to be down compared to previous generations. Some have attributed this trend to this cohort’s opposition to owning big-ticket items versus experience-driven purchases. Others believe that the cause is affordability.
Recently, an article was published, claiming that millennials in Calgary prefer to rent, despite even having the funds to enter the property ladder.
Brokers in both Toronto and Calgary were asked about this matter and have speculated that it is in fact affordability that seems to be the main driver for Millennials opting to rent instead of buying.
Lowell Martens, Broker of Record, RE/MAX Real Estate Mountain View in Calgary says Millennials value the idea of home ownership. “Most appear to want to buy a home but due to lack of funds, some may have no choice but to wait…Their long-term goal is to own some type of home in the future.” Lowell adds, “I feel in cities like Vancouver, a Millennial has no choice but to rent just due to cost.”
And Toronto? – Canada’s second priciest property market.
Jamie Johnston, Broker of Record/Owner, RE/MAX Condos Plus Corp. in Toronto states that “Young people are not opting to rent in Toronto. They only rent when they cannot buy.”
Admittedly, according to the RE/MAX 2018 Housing Market Outlook, the intent is definitely there. 68% of Ontarians are homeowners. This is higher than the national average of 66%. Furthermore, while only 45% of Canadian Millennials currently own homes, 72% of Millennials are planning to buy in the next five years.
Renting versus owning
From a strict “cash-flow” perspective, renting may appear cheaper in the short term. However, the reality is that approximately 50% of a mortgage payment goes to repay principal – a forced savings. This means that in the end, renters may not be able to save the amount that buyers do.
The gains in value from a principal residence are tax-free, so buying is the better choice once you are able to afford it.Yet, we won’t deny that a down payment and mortgage can crimp a lifestyle, so renting, at first glance, can seem like the best of both worlds.
Quite frequently, the biggest purchasing barrier for Millennials is the down payment. Many Millennials make an unquestionably good income but haven’t saved enough for the initial down payment. Mom and Dad can be a lifeline!
Condos are a popular choice for a first home because they are often more affordable and they suit many Millennials’ lifestyles. Parents have a big influence in terms of ingraining the value of real estate, and this often drives Millennials’ desire to own.
At the end of the day, Millennials in every city share common challenges and aspirations when it comes to real estate. Owning an elusive home is very desirable – even if that means relying quite a bit on the parents, or renting for a couple of years before they have the chance to purchase a home.