Parents are the primary source of down payments

While Canadian home prices are increasing and becoming less affordable, people are still managing to buy properties – mostly with the help of their parents.

CIBC published a report saying that, in the past year, around 30 percent of first-time homebuyers received financial help from their parents and were gifted an average of $82,000, while mover-uppers were gifted an average of $120,000. During the pandemic, however, the number of families helping out fell among those who had already bought a home before.

Benjamin Tal, Deputy Chief Economist of CIBC World Markets and the author of the report, said that overall, they “estimate that over the past year, gifting amounted to just over $10 billion, accounting for 10% of total down payments in the market as a whole during that period.”

This doesn’t mean that parents were going into debt to enable their children their own homes; Tal estimated that only about 5.5 percent of parents in 2020 went into debt to finance the money for their kids’ down payments. Most of the gifted money comes from the parents’ savings, and while this is a nice gesture, it creates a big inequality between people who can and cannot count on their parents’ help.

Homebuyers who received these gifts can cover a big part of their down payment, and therefore have a lower interest mortgage. Oftentimes, having money for a downpayment can make a difference between owning and not owning property, so it’s safe to conclude that these gifts aren’t doing a favour to narrowing the wealth gaps among young adults.

“Given the trend and the size of gifting, it is clear that this phenomenon is becoming an important factor impacting housing demand and therefore home prices in Canada,” the report said.

The reason behind this could be the sense of urgency parents have when it comes to helping their kids buy a house in the middle of inflation, the current house bubble, and the pandemic.