Today’s real estate market, especially in bigger cities, gives millennials a hard time. The mortgage stress tests and limitations introduced last year hindered already a fraction of millennials to qualify for a mortgage. Then, there was the price hike in the first quarter of 2017 which further disabled a great percentage of millennials to buy a home. On the other hand, many of them who became proud homeowners have regretted it as mortgage debt combined with other costs became unbearable. Lack of cash drives them to put their recently bought homes on the market.
First-time millennial buyers face many different challenges depending on the area or city they live in. For example, in Toronto, job seekers have great outlooks to find a job, but buying a home these days is barely affordable. Over 70% of millennials believe that homes are overpriced in Toronto. When we look at the market in the bigger cities, it is completely logical though. Supply was scarce and demand was high, especially at the year’s beginning. Even though the market slowed down during the second quarter, the prices remained still pretty high. Saving up for a down payment while living at home is one way to cope with the overpriced market. Many first-time homebuyers moved to the suburbs where property is more affordable. Some millennials also buy property in the cheaper areas to rent it out and save up enough money to afford a house or condo apartment in Toronto, while others borrow money from family to afford a bigger place which they then share with renters.
The heated markets in Toronto and Vancouver drove up the prices in the surrounding cities and towns as well. The more a suburb area is sought-after, the pricier it gets. This means that millennials also face an overvalued market even when they leave the city.
A recent survey has shown that the biggest percentage of millennial home buyers is found in Calgary. The city seems to offer both, steady jobs and affordable homes in the downtown area. The question is, how long will it last and what will happen if demand surpasses supply?
The interest rate hike, first in July and then in September, represents an additional hurdle yet to overcome, especially since further increases are underway. Home prices will not tumble down due to interest increase. On the contrary, they will probably increase as well. Statistics prove that a higher interest rate is usually accompanied by a price increase. Will it further drive millennials out of the market remains to be seen.