The first hurdle to buying a home in Canada is getting much higher – saving for a downpayment. A National Bank of Canada (NBC) analysis shows it took a record number of months to save a downpayment in Q4 2020. Households need to save for the longest period in history, passing even the late 1980s bubble. The national record is still just a fraction of what’s needed in Toronto and Vancouver.
About The Data
Today we’re looking at NBC’s data on the number of months someone has to save for a downpayment. The income used is the median number for each region, which may skew the months lower. A first downpayment typically happens “early” in one’s career, when they make less. The savings rate is assumed to be a realistic 10% of household income. The minimum downpayment is the lowest a bank will accept, which is 6% at the national level. Got it? Let’s look at how each region fares, starting with the national numbers.
Canadians Need To Save The Longest In History To Buy A Home
The number of months to save a downpayment for a home across Canada has reached a record high. The median household needs 60 months of savings for the minimum downpayment. According to NBC data, this beats the 57 months briefly experienced around 1989. By 1992, that number had dropped down to 26 months. Now it’s up to 60 months, increasing by almost 58% since the Great Recession. Remember, this is at the national level. It’s faster to save in some markets, and much worse in others.
Canadian Months of Saving For A DownpaymentThe number of months a median household has to save for the minimum downpayment in each region. Source: NBC, Better Dwelling.
Toronto Homes Need Up To 24 Years of Savings
Buying a home in Toronto can now take up to 24 years, if you’re a typical household. The median household needs to save 289 months for a downpayment on a non-condo home, which is just over 24 years. For a condo apartment, they can get a downpayment together in about 4.25 years. Income in the region increased 1.3% over the past year, but the price of non-condos and condos increased 5.5% and 1.2%, respectively. The gap is generally widening, unless you’re in the market for someone’s old AirBnB.
Vancouver Homes Need Up To 34 Years of Savings
Buying a home in Greater Vancouver can take over three decades if you’re a typical wage earner. The median household in the region needs to save 409 months for a downpayment on a non-condo home. This works out to just over 34 years. For a condo apartment, you’re looking at a slightly more reasonable 58 months, which is just a touch under 5 years. Income increased by 1.0% in 2020, while non-condo and condo dwellings fell by 0.1% and 0.4%, respectively. Things were getting better, but the gap is so big it barely makes a dent in the total outcome.
Montreal Homes Are Much More Affordable… Currently
Montreal’s high flying real estate seems like a total deal in contrast to Toronto and Vancouver. The median household needs to save 39 months to make a minimum downpayment on a non-condo. This works out to just a touch over 3 years. Condo apartments are a little more affordable, with it taking 29 months to save. Incomes increased 1.3%, which is much weaker than the 6.6% and 3.5% increase seen in non-condos and condos, respectively. Fairly reasonable for a downpayment, but at the current rate that might not be the case if things don’t slow down.
Low interest rates made carrying a mortgage affordable, but inflated downpayments. If you don’t have access to intergenerational wealth, the drop didn’t mean much to buyers in big cities. If it takes 34 years to save a downpayment, you would be 54 if you made the median income at 20. In other words, interest rates can be 100% or 0%, it doesn’t matter if you don’t have a sufficient downpayment. It definitely didn’t help young people with affordability in Toronto or Vancouver. It only inflated the cost of the homes.
Those without an account at the Bank of Mom & Dad are taking advantage of low rates though. They’ve had to go far outside of the city, where it takes less to clear the downpayment barrier. This was likely another contributor to the exodus of young people from Toronto and Vancouver. Low interest rates potentially leading to young people leaving big cities. That’s a new one.
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