How Insane Is Canada’s Housing Bubble? 42% of “Second-Time” Buyers Need (a lot of) Money from Mom & Dad to Buy a Home
A housing bubble is a huge party. Everyone gets drunk and has a good time. The economy booms because housing, particularly construction, is a very local business. It creates local jobs. People spend this money. Businesses get this money. Governments exact their pound of flesh. But there is a drawback to a housing bubble, beyond the fact that it will eventually crash with terrible consequences: New entrants into the market are getting locked out by soaring prices.
Canada’s housing bubble has been a sight to behold. Home prices only dipped 8% when the US housing market crashed. Then it re-soared. Now, across the country, home prices are 26% higher than they were at the already crazy peak in 2008. In Toronto, they’re 42% higher! Prices in the major urban centers where young people like to live have become a challenge for first-time buyers.
First-time buyers are special. One, they’re the foundation of a healthy housing market; they represent growth. And two, they don’t benefit from any run-up in home prices. Current homeowners profit from the housing bubble by owning a home that has gotten pricier. When they move, they sell an overpriced home, which soothes the pain of buying another overpriced home. But first-time buyers feel the full brunt of the bubble price.
So the Bank of Montreal (BMO), in its Home Buying Report, determined just how difficult it’s getting in Canada. The survey found that 42% of the potential first-time buyers, those hardy folks that haven’t been discouraged by the soaring prices, expect to recruit the help of mom and dad, and in a big way.
To begin with, which is not a good sign, first-time buyers whittled down their budget by C$3,400 on average from last year to C$312,700 (US$259,000).
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