Toronto housing prices remain high even after a recent cooling off period that saw some locations drop by more than 20%. And still, even with sales in March down 40%, the largest drop since 2009, homeownership in Toronto and the GTA is but a dream for most millennials.
The stress test continues to block the majority of millennials from entering the real estate market as they are unable to meet the requirements of the test.
In fact, Canada’s new mortgage stress test has effectively reduced the buying power of millennials by as much as 16.5%, or $40,000. And when it comes to purchasing a home, a $40,000 reduction in buying power can equate to a sizeable portion of the down payment.
Previously, a homebuyer that could have qualified for a 3.09% mortgage will now have to show that they can qualify at 5.14%. Even though they previously qualified for a $486,674 mortgage, they now only qualify for a $406,479 one under the new stress test rules.
And of all the markets in Canada, Toronto and Vancouver continue to punish millennials the most.
So, how can millennials take the plunge and become homeowners? The answer is new condo development projects.
New Condo Development Projects are the Answer
With interest rates on the rise, millennials are going to have to find affordable alternatives to the traditional suburban house with a white picket fence. Toronto’s over $1 million average home price is unrealistic for millennials who only just began their careers and are still establishing themselves financially.
New condo development projects are one of the best alternatives because they are affordable and the majority of younger buyers can pass the stress test.
Here’s what Royal LePage concluded in their latest report:
The average Canadian peak millennial earns $38,148 annually and has a home-buying budget of $203,246. A two-income family — without help from parents or other sources — could afford a home costing $406,479 in the first part of the year. So Royal LePage looked at what millennials could get in different Canadian cities at an entry level range of $325,000 to $425,000.
In Toronto that budget will get you a home with around 856 sq. ft., in Vancouver you will get around 788 sq. ft., while that budget will get you a 1,500 sq. ft. home in Ottawa, Montreal, or Winnipeg.
New condo development projects and other new homes are quickly becoming the go-to answer for millennials due to the way the down payment is staggered over a period of several years.
“They know they’ll be in a better financial position when the property closes. They’re willing to wait that two or three years for it to come to market just based on what they’ve been approved for now because it’s so competitive in that re-sale market,” said Royal LePage sales representative Tom Storey.
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