Canada

Canadian Home Buyers Need Up To 34 Years of Savings For A Down Payment: NBC

Canadian real estate affordability deteriorated so fast, it will delay buyers by years. National Bank of Canada (NBC) crunched the numbers on how long it would take to save a down payment in Q2 2021. Not buy the home, but to just have the minimum required down payment to get a mortgage. Over one quarter, home buyers in some markets saw the time needed to save extend by years. That was on top of a timeline that already took up to three and a half decades to save the bare minimum down payment.

Canadian Months To Save A Down Payment

Today we’re looking at how long it takes to save the minimum down payment to buy non-condo housing. The savings are using 10% of the median gross household income for each region. Non-condo housing means any single-family dwelling (e.g. detached, semi, town, etc.).

The length of time is then expressed in years, with a small catch. For the time to be true, incomes need to keep pace with home prices for the whole period. The last part is obviously unrealistic, but not much more unrealistic than expecting 30 years of savings to buy a home, right? More likely home prices fall, or absurd inflation causes incomes to rise in line with prices. The latter sounds better but is usually so disastrous it causes the former as well — making it much worse. Got it? On to the data.

Canadian Households Need 9 Years To Save A Down Payment

Canadian households now need nearly a decade of savings to buy in the urban composite, a.k.a. a typical city. It would take 9 years of savings in Q2 2021, up a year from the previous quarter. That’s right, one year of savings to counter 3 months of activity.

In contrast, the long-term average since 2000 has been just 4 years, so now buyers are looking at double. Don’t let anyone tell you it’s always been this hard, because that’s just not true.

Minimum Down Payment For A Home In Major Canadian Markets

The number of years it would take to save the minimum down payment for non-condo housing in major Canadian real estate markets. Included is the long-term average since 2000.

Source: National Bank of Canada; Better Dwelling.

Toronto Home Buyers Need 27 Years To Save A Down Payment

Just a decade? That must sound like a deal to home buyers in Toronto, now looking at nearly three. It would take 27 years of savings in Q2 2021, up 2 years from the previous quarter. Since 2000, the long-term average was only 5.1 years. Today’s young adults are looking at 5x that. Good thing 57 is the new 30, right?

Vancouver Home Buyers Need 35 Years To Save A Down Payment

Greater Vancouver has always been unaffordable, but never quite like this. It would take 35 years of savings in Q2 2021, up 2 years from the previous quarter. The long-term average from 2000 is 12 years. Still very high normally, but today’s buyers are looking at three times that high rate for the entry ticket. 

Montreal Home Buyers Need 4 Years To Save A Down Payment

It may sound like the norm to see the down payments soar across the country, but Montreal shows that’s not the case. It would take 4 years to save a down payment in Q2 2021, the same as the previous quarter. Since 2000, the long-term average has been 3 years, so you’re not looking at a crazy expansion. I mean, it takes a third longer, which is a very large number. A median household just won’t be near retirement with that change. 

Hamilton Home Buyers Need 7 Years To Save A Down Payment

Hamilton real estate is now considered the frothiest market in Canada, and down payments reflect that. It would take 7 years of savings for a down payment in Q2 2021, an extra year from the previous quarter. Since 2000, the long-term average has only been 3 years. Home buyers are looking at double the time compared to the previous two decades of home buyers. 

Calgary Home Buyers Need 3 Years To Save A Down Payment

Then there’s Calgary, which has one of the highest median incomes in the country and is affordable. It would take 3 years to save a down payment, the same as the previous quarter. That also happens to be the same as the long-term average. In other words, incomes are growing at least as fast as the size of a down payment.  

Canadian home prices are soaring everywhere, and it’s much harder to buy today than it used to be. Some attribute this to low interest rates, but Montreal and Calgary prove that’s not the case. Both regions are seeing prices rise at a brisk rate, but they’re rising more in line with incomes. In contrast, cities like Toronto and Vancouver now take decades to save enough to get a mortgage. 

Even if Toronto and Vancouver suffered a deep correction, home prices would still be out of reach. This begs the question, who’s going to provide liquidity at these prices? The top 10 percent of incomes can only buy so many homes.

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12 Comments

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  • Pat 4 months ago

    I used to think condos were the alternative, but the cost of maintenance is almost as much as my rent in my current apartment. At this point I’m not saving anything, just spending to hope it continues to appreciate. This is f*cked.

    • Olivia 4 months ago

      Work from home ends, insurance rates go up. Work from home stays, why are you living in a condo? it’s a tricky one.

  • Jamie Price 4 months ago

    If it rises two years for every quarter, it’s impossible for anyone to catch up. Even if you believe in the immigration narrative, they won’t stay in Toronto and Vancouver at this rate. Every other market is becoming more competitive.

    • Kevin Logan 4 months ago

      If Trudeau is reelected, I’m willing to bet we’ll see zero down with extended amortizations to see this continue.

      “we fixed the downpayment issue! Now you can just add it to the back end of your mortgage”

    • RWZM 4 months ago

      “Even if you believe in the immigration narrative, they won’t stay in Toronto and Vancouver at this rate”

      1. People cannot leave nearly as fast as the government can bring them in.

      2. The rich immigrants (legitimate or otherwise) will stay here because they will simply pay the high prices and displace locals.

      3. As for the poor and middle class immigrants, the whole crux of the immigration scheme is that it’s arbitrage. You bring people from places where life is worse (i.e. most of the world), sell them an upgrade, give existing Canadians a downgrade, and pocket the difference. In order for people to stop coming here, things here would have to get a lot worse than this. Not to say that they won’t.

  • Trader Jim 4 months ago

    RBC picked Calgary for its next tech hub for a reason, and it’s not because they see the next generation of innovation sticking around.

    • Bala 4 months ago

      I hope at least a few big cities remain affordable to normal people who are not in the Top 10 %.

      • RWZM 4 months ago

        You have to be higher up than the top 10% to afford anything decent at this time.

  • Holton 4 months ago

    That’s why we are stuck between a rock and a hard place. On the one hand the economy didn’t recover so we cant raise rates even when we have some inflation also political fallout from boomer home owners. One the other hand we have young people who cant afford a place of their own.

    The only solution is to implement policies that keep housing price increase in check, for example taxing people with multiple residential properties nation wide. At the same time let inflation do its job, 5 years down the road if wages and other goods increased 2x while housing only increase 1.5x we will be able to help everyone. This takes a lot of skills, not sure if the current government have the talent to implement a strategy like this.

  • Kolf 4 months ago

    Guys, if you missed Toronto and Vancouver you wont want to miss Ottawa. Its the next Toronto because lots of well off young families are moving there.

    • Nunavut man 4 months ago

      Guys, housing market in major Canadian centers unaffordable. Yukon, Nunavut should be out next destination.

      • Canaduh 4 months ago

        Nunavut is world class but is running out of land. It’s a supply issue. Cost of lumber, general supplies, and transport is sky high. Lots of foreign capital flowing into Iqaluit casinos. High end snowmobiles everywhere. Best to get into the market now before being priced out completely. Buy multiple properties if possible and rent them out. Tenants are rarely trouble. Free passive income. Use HELOC on one property as the deposit on another, debt is cheap. Goverment will prop you up forever. Ask parents for all retirement savings. Cash is trash. Everyone’s talking about Nunavut. Now is a great time to buy.

        (Sarcasm. Not financial or life advice. Best of luck to all of us. )

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