Where is today’s deposit coming from?

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One avenue for homebuyers is to receive financial assistance in the form of a gift from their parents.

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With Altus Group’s January 2022 statistics for the Greater Toronto Area showing the benchmark price of a new single-family home at $1,771,162 and a new condominium at $1,150,685, you must be wondering how many people pay down payments of up to 20 percent.

These days, down payments are as much as homes cost a few decades ago. Of course, many buyers still use traditional methods such as saving over long periods of time or using the equity they’ve earned on an existing home to purchase a new one.

Some people co-purchase to make the deposit and mortgage more affordable for those involved. First-time home buyers can also take advantage of government programs that help them, such as the Canada Home Buyers’ Plan, which allows them to withdraw up to $35,000 from their RRSP for their purchase.

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Another avenue for buyers is to receive financial assistance in the form of gifts from their parents, and this practice is fashionable today in more ways than one – in October 2021, CIBC released an Economics In Focus that around 30% of first-time buyers (up 10% from 2015) and just under 9% of existing homeowners received financial assistance from family in the past year (https:/ /bit.ly/3C3xFQV).

In Canada, the average amount received by first-time home buyers was $82,000 (up from $52,000 in 2015), and the average gift to first-time buyers reached $128,000 in September 2021.

Of course, these are averages. In fact, in the first three quarters of 2021, the average giveaway to first-time home buyers in Toronto was over $130,000 and nearly $200,000 to upper-tier buyers. In Vancouver, those numbers were $180,000 and $340,000.

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Overall, these financial donations amounted to $10 billion in Canada, or 10% of total installments, according to Benjamin Tal, CIBC’s deputy chief economist. At least two-thirds of first-time homebuyers who received assistance said it was the main source of their down payment.

So how do parents find all that money to help their children? Surprisingly, only 5.5% of caregivers go into debt to do so. A significant percentage of them are dipping into their savings for these freebies — savings that have increased dramatically during the pandemic, when Canadians weren’t traveling and using their disposable income as usual.

There are billions of dollars that would normally be floating around, but that’s not because people are staying home and limiting their spending. Another approach that some parents take is to free up money that would eventually be considered part of their children’s inheritance. The number of parents co-signing mortgage loans has also increased.

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Combined with low mortgage interest rates, this trend makes it financially possible for more Canadians to enter and progress in the real estate market.

Remember that many donor parents paid double-digit mortgage rates in the late 1980s and early 1990s, so they see an optimal window for their children to take advantage of our current low rates.

It will be interesting to see how this trend plays out in the long term, but for now it’s a lifeline for potential buyers.

Michael Klassen is the Official Broker and Partner at Eleven Eleven Real Estate Services. Based in Toronto. Visit https://1111realty.ca

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