Why are young homeowners keen on maintaining this arrangement?
Under today’s circumstances, it no longer comes as a surprise that one in three Canadian homeowners have stretched their finances to purchase a home, but the latest Rates.ca survey also revealed that the bulk of the income of most younger homeowners is now being spent on mortgage payments.
In particular, 20% of respondents aged 18 to 34 claim they spend 50-74% of their monthly income on mortgage payments. This poses a significant problem given that monthly housing costs shouldn’t exceed 32% of one’s monthly income as per the Canada Mortgage and Housing Corporation (CMHC).
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Why are young homeowners keen on maintaining this arrangement? Rates.ca found that a considerable number of Canadians are intending to rely on home equity for retirement. The same survey found that 24% of homeowners – 39% of them are in the younger bracket – will either make use of downsizing, a home equity line of credit (HELOC), reverse mortgage or a refinance in their senior years.
In addition, new homeowners who purchased in the last two years are three times more likely to expect their home equity to fund the majority of their retirement. This pressure to leverage homeownership as equity is driving the younger generation to accept unaffordable arrangements.
Read more: Poll: Housing affordability still nowhere in sight in Canada
“For the baby boomer generation, overwhelmingly, their homes were the biggest driver of their wealth accumulation,” David O’Leary, founder of Kind Wealth, told Rates.ca. “Unfortunately, I don’t think younger Canadians today have that luxury. We’ve had a period of exceptional growth, and so people expect to see 20%, 30%, 40% increases over two- or three-year periods, and that’s way above the historical average for real estate.”
