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The lowdown on down payments

Millennials must prioritize life’s wants when considering buying a home

The time it could take millennials today to raise the minimum down payment required, on average, for a home in some major markets is downright scary.

That’s according to a recent nationwide survey by real estate website Point2Homes, detailing how 80 per cent of millennials in the country’s priciest market of Vancouver think a down payment of less than $100,000 is enough to become a homeowner.

The fact is, based on the average home price in B.C.’s lower mainland, the actual down payment is $283,346.

Looking at it another way, putting aside 20 per cent of your after-tax income each month would take a Vancouverite 20 years to save up to buy a modest dwelling. 

However, the time needed to save up for a down payment varies widely among Canada’s 10 most populous cities. Vancouver is at the top of the list, but in Toronto it would take five years saving 20 per cent of one’s income or as little as one year in Edmonton where the average home price is $377,125.

The survey, conducted over the summer, also showed overall 40 per cent of Canadian millennials have only accumulated $10,000 or less in savings to put down on a new home when the national average for a down payment is about $25,000. As well, 10 per cent of millennials have no money for a down payment at all. 

So, it comes as no surprise that millennials are delaying their first home purchase or choosing to buy a condominium or townhouse a one- to two-hour drive away from a major city centre. 

Saving 20 per cent of after-tax income isn’t only unrealistic for many, it’s just plain impossible if you live on your own, with your own day-to-day expenses to consider.

In the highest priced real estate markets, getting parents or other family members to assist in raising enough for a down payment is not uncommon. Neither is siblings or even best friends buying a home jointly because the cost is insurmountable on their own.

On the upside, there are 40 real estate markets that make it easier for millennials to buy their first home. The main urban centres in Atlantic Canada all make this list.

Timmins, Ont., and Trois-Rivieres, Que., are number one and two on the list, but ranking third is Cape Breton Regional Municipality (CBRM). Like Timmins and Trois-Rivieres, it is plagued with high unemployment and, as a result, homes are priced lower.

In the CBRM, most homes are modestly priced, and a starter home can usually be found for less than the average of $151,929. But based on that average price, a minimum down payment of $7,596 would take only six months to raise – again, using the premise that one could squirrel away 20 per cent of one’s monthly income. 

A more realistic saving method – in the range of four to five per cent of after-tax income – would take about 2.5 years to reach the threshold for a down payment. Not bad.

The best bang for any millennial starting out may be in Charlottetown with an average home price of just over $206,000 and slightly over three years to raise enough for a $10,000 down payment, under the guideline of saving four to five per cent each month.

But whether millennials generally have the patience and willingness to make the sacrifice will depend on where they are in their lives currently, according to Avis Devine, an associate professor of real estate in the Schulich School of Business at York University in Toronto.

“Many millennials are valuing their time and experiences over amassing physical assets,” she said, contrary to prior generations. 

“People that follow this approach may prefer to spend their time (and money) on, for example, traveling rather than on home maintenance. For those valuing their time over possessions, decreased commute time is key, making urban (often more expensive) locations more desirable. All of this leads to a large number of households that prefer to rent rather than purchase.”

The key is to start saving early, even if it’s a modest portion of each paycheque.

There’s also being realistic in what type of house you can afford. Sure, dream of a three-bedroom house with an en-suite bathroom that has in-floor heating, but keep in mind as a first-time home buyer it might very well be out of your price range.

Take one step at a time when climbing the property ladder.

Chris Shannon is the business reporter at the Cape Breton Post in Sydney, N.S. 

He can be reached via email at chris.shannon@cbpost.com or on Twitter @cbpost_chris. 

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