There’s (more) bad news for millennials trying to crack into the Greater Toronto Area’s real estate market.
According to a new report from Royal LePage, new rules around mortgage stress testing have driven up competition for properties and slashed the purchasing power of millennials around the GTA.
In January, Canada’s top banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), mandated that all borrowers undergo a test ensuring they would be able to pay their loan if interest rates become higher than they are today.
Since then, millennials have lost 16.5 per cent of their purchasing power, or an average of $40,103 per person.
With the new requirement for testing, “peak millennials” — those born between 1987 and 1993 — now have a maximum home buying budget of $203,246, given an average salary of $38,148.
“In our largest cities, it is difficult for young people to purchase a home on a single household income,” said Phil Soper, president and CEO of Royal LePage.
In response to the tougher market, Royal LePage has found that a growing number of young people are now considering smaller homes or a move to a more affordable area.
In Toronto, more millennial buyers are looking toward the eastern suburbs, Soper said. Others are packing up and leaving the GTA entirely.
“Relocating and changing jobs completely, moving to cities like London and Kitchener-Waterloo, is completely on their agenda,” Soper said.
The report also found that while most millennials can afford their monthly mortgage payments, many now struggle to come up with a 20 per cent down payment.
Even if they can put down that 20 per cent, those buyers are now subject to stress testing.
Royal LePage has found that an increasing number of millennials are now using creative strategies to make their down payments, including “teaming up” with friends to purchase property.
Many others are still relying on help from parents, who are often in the process of downsizing as their children are entering the real estate market for the first time.
Others are simply waiting to find a spouse or partner before purchasing a home, effectively doubling their purchasing power.
‘There is a window’
While the report largely paints a grim picture for prospective buyers, Soper believes there is still hope.
The recent slowdown of the GTA’s housing market, coupled with steadily increasing wages, may have created a brief opportunity for new buyers, he said.
There is a window now, it’ll probably last through the year and into next year,” Soper explained. “Some people will be able to take advantage of it.”
Despite the tough conditions, millennial buyers are still finding ways to purchase homes, he added.
In more possible good news, Royal LePage found the average size of GTA homes between $325,000 and $425,000 increased from 816 square feet to 856 square feet over the last year.
However, the report chalks up that growth to the fact that many downtown condos have now surpassed $425,000, meaning larger properties outside of the city now form the bulk of affordable properties available to millennials.