For many renters, homeownership remains the ultimate goal, but rising prices and stagnant incomes mean it could take a really long time to save enough to cover the down payment on a home in the city where they live. This is especially true for younger renters, who face the longest timelines of all.
According to a new study, renters in Canada’s largest cities would need to set aside 20 percent of their monthly income for anywhere between 2.5 to 40 years to afford a 20 percent down payment on a starter home – properties priced at half the local benchmark price. This makes the path to homeownership particularly daunting for Gen Z renters, who face the longest saving periods due to lower incomes.
What’s more, while starter homes are still available in some areas, they are becoming increasingly scarce. In Toronto, Edmonton, and Vancouver, there may be up to 800 starter homes on the market, but in other cities like Quebec City, fewer than 50 of the homes currently on the market could be considered starter homes.
Among all age groups, Gen Z renters, who are just beginning their careers, have the toughest road ahead. In cities such as Vaughan, Vancouver, and Toronto, young renters could need 25 to 35 years to save enough for a down payment. In Markham, this extends to a staggering 40 years.
By contrast, Gen X renters, aged 45-54, need only 2.5 to 12 years to save, benefitting from more established incomes and financial stability.
Just like almost any other buyer on the market, no matter their age, Millennials also face significant challenges. However, they are doing slightly better than their younger counterparts. Younger Millennials may need up to 15 years to save for a down payment, but older Millennials might manage it in just 10 years or less, depending on the city. Still, in the most expensive markets, even older Millennials are looking at up to 12 years of saving.
A Point2 survey focusing on renters’ homebuying intentions revealed a gap between their expectations and the actual financial commitment required to buy a home. Most respondents said they wished to buy a home within the next year but have savings that are much lower than the amount they would need. Many renters expect to need less than $50,000 for a down payment, while in reality, even a starter home in some cities would require much more than that.
For instance, in cities like Surrey, Mississauga, Toronto, Vancouver, and Vaughan, down payments range from $100,000 to $135,000. The misconception that $50,000 would be enough might force many renters to face a reality they weren’t prepared for.
Almost half of those surveyed have less than $10,000 saved, and four in 10 renters save less than 10 percent of their income each month.
Even older Millennials, Gen X, and Baby Boomers report significant challenges in saving. Shockingly, a similar share of older renters report having no savings for a down payment, reflecting a widespread difficulty in building the financial foundation needed to purchase a home.
While homeownership would benefit most people, it’s the youngest renters who have the strongest need and motivation to become homeowners. Whether they’re looking for more independence as they move out of the home they grew up in or want to start their own family, owning their home would be life-changing.
However, without help from family or drastic changes in the housing market, many renters could be saving for years and even decades before they can call a house their own. For now, homeownership remains an elusive dream for many across the country.
Andra Hopulele is a Senior Real Estate Writer at Point2Homes, an online real estate marketplace with more than 20 years of experience in the housing industry.
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