Retirement Savings vs. Home Ownership: 1 in 5 Modern Family Homeowners Purchase a Home by Delaying Retirement Savings
Mustel Group/Sotheby’s International Realty Canada report reveals struggles and strategies of Canada’s young urban family homebuyers
Toronto, Ontario , Feb. 13, 2019 (GLOBE NEWSWIRE) — A new report released today by Mustel Group and Sotheby’s International Realty Canada highlights the impact of escalating costs of living on young families across the country’s major metropolitan real estate markets. The report sheds light on the financial challenges faced by urban Canadian families, including the decision between saving for a home versus saving for retirement, and provides insight into how those obstacles are being overcome.
Mustel Group and Sotheby’s International Realty Canada’s “Modern Family Home Ownership Trends Report: Financing the Canadian Dream” found that for “modern family” homeowners in every metropolitan area surveyed, the main obstacle to saving for a home is the cost of basic living expenses, cited by 33% as their top challenge. Many are also undertaking significant financial, career and personal measures to successfully attain home ownership. A notable 20% of modern family homeowners delayed saving for retirement, 19% secured a job with a higher salary while 14% added a part-time or freelance job to full-time work. 12% chose to delay the decision to have a child in order to save for a home, and 9% moved back in with family.
“Young families are a growing influence on metropolitan real estate markets across Canada,” says Josh O’Neill, General Manager of Mustel Group. “This report reveals new information on the financial barriers faced by this cohort when saving for a home, as well as how those barriers are being overcome.”
Survey findings also reveal how young urban family homeowners utilize diverse strategies and funding sources to build their down payment. The most common sources of funding are personal savings or cash (used by 71%), a financial gift, inheritance or living inheritance (52%), borrowing from RRSPs (31%) and proceeds from the sale of real estate (25%) . For the majority that benefitted from a financial gift, those funds comprised less than 30% of their down payment.
“The dream of home ownership remains compelling for today’s young families, but the reality is that many are facing serious obstacles to achieving this given rising costs of living, rising costs of housing, and other financial needs, such as saving for retirement,” says Brad Henderson, President and CEO, Sotheby’s International Realty Canada. “While these are significant challenges without a simple or singular solution, our research reflects strategies from those who have navigated their way and successfully bought a home. There is no doubt, however, that in an environment of higher interest rates and tighter mortgage guidelines, today’s families will continue to confront new challenges as they make home buying decisions in this year’s market.”
“Financing the Canadian Dream” is the second report in a multi-part series focused on the home ownership trends of young urban families. It is based on findings from a survey of 1,743 families in the Vancouver, Calgary, Toronto and Montreal Census Metropolitan Areas, with a focus on ones where the adults are between the ages of 20 and 45.
Basic Costs of Living: The Greatest Barrier to Saving for a Home
Across Canada’s key metropolitan areas, young, urban families identified the cost of covering basic living expenses, such as rent, groceries and utilities, as their leading financial barrier to saving for home ownership. Overall, 33% of homeowners reported this as their primary obstacle. Rates exceeded this average in Calgary (38%), Vancouver (37%) and Toronto (35%). 25% of families in Montreal reported basic cost of living as their greatest challenge, significantly below the national average.
Other frequently cited barriers to saving for a home purchase include paying for non-essential lifestyle expenses such as dining out, travel, entertainment, fitness memberships (14%), paying off credit card debt (8%), saving for retirement (6%) and paying off student loans (6%).
Home Saving Strategies: Superficial to Significant
While minimizing or reducing non-essential lifestyle spending is the most common measure taken by modern family homeowners when saving for a down payment, findings from the Mustel Group/Sotheby’s International Realty Canada survey reveal that many are also undertaking significant, and at times severe, financial, career and personal measures to attain home ownership.
51% reduced or eliminated dining out, 45% reduced or eliminated travel and vacations, while another 45% sacrificed personal expenditures such as clothing or technology purchases. As part of their efforts to save for a home, 37% of families reduced or eliminated health and fitness expenditures and 15% reported reducing or eliminating car ownership.
Across the metropolitan markets surveyed, a significant 20% of urban families reported that they delayed saving for retirement in order to save for a home purchase instead. 19% secured a job with a higher salary while 14% added a part-time or freelance job. 12% chose to delay the decision to have a child in order to save for a home, while 9% moved back in with family.
There are minor variations in savings strategies from region to region.
While limiting or eliminating dining out, travel and personal expenditures are the top home purchase savings strategies for young families across all metropolitan areas surveyed, they are most frequently employed in Calgary, at rates of 54%, 51% and 47% respectively. Those in Calgary are the most likely to have delayed saving for retirement in order to attain home ownership, with 23% reporting the use of this strategy. Along with those in Vancouver, families in Calgary are also more likely to secure a job with a higher salary to save for a home, with 21% citing this as a strategy. They are among the least likely to move back in with family in order to save for their down payment, at a rate of 5%.
In Toronto, modern family homeowners are also highly likely to have foregone non-essential lifestyle spending in order to save for their down payment: 54% eliminated or reduced dining out, 47% eliminated or reduced travel, and 45% eliminated or limited other discretionary personal expenditures. Compared to families in other metropolitan areas surveyed, those in Toronto are the most likely to have added part-time or freelance work, with 16% citing this as a strategy. 20% delayed saving for retirement in order to achieve home ownership, on par with the average of the metropolitan areas surveyed. Toronto families are also significantly more likely to delay the decision to have a child and to move back in with family to save for a down payment, at rates of 15% and 13% respectively.
Despite housing affordability challenges, young family homeowners in Vancouver are less likely to have sacrificed non-essential lifestyle spending in order to save for their down payment than in other Canadian metropolitan areas. 45% reported that they eliminated or reduced dining out, 43% eliminated or reduced travel, while 41% sacrificed other personal expenditures. Along with their counterparts in Calgary, Vancouver families are more likely to secure a higher paying job to save for their down payment, at a rate of 21%. 20% delayed saving for retirement to achieve home ownership. Vancouver families are the least likely of their urban Canadian counterparts to delay the decision to have a child in order to save for a home, with 9% reporting this as a strategy used.
Montreal families reported reducing or eliminating dining out, travel and non-essential personal expenditures in order to save for a home at rates of 47%, 40% and 44% respectively. Notably, they are the least likely to delay retirement savings to save for a down payment, with 18% reporting this as a strategy used to achieve home ownership. 5% reported that they moved back in with family to save for a home, in line with the rate in Calgary, but below the 7% reported in Vancouver and the 13% reported in Toronto.
Retirement Savings vs. Home Ownership
Results from the Mustel Group/Sotheby’s International Realty Canada survey reveal the degree to which young families are challenged with the choice between buying a home and saving for retirement.
Even as 20% of modern family homeowners postponed retirement savings in order to achieve home ownership, another 31% withdrew funds from their RRSPs for their down payment. Under the federal government’s Home Buyers’ Plan, first time home buyers may withdraw $25,000 of RRSP savings to finance the down payment on a home without tax penalty if the amount is repaid within 15 years.
Notably, the flow of funds into RRSPs from 25 to 54 year old Canadians has declined in recent years. According to Statistics Canada, the number of RRSP contributors within this age range fell 16% from 5.0 million in 2000, to 4.2 million in 2013. Although it is not possible to determine if this trend results partly from shifts toward investment into other means of wealth accumulation including home equity, it underscores the ongoing challenges of balancing competing financial opportunities in face of finite financial resources.
Financial Self-Sufficiency vs. Reliance on Outside Support
In major real estate markets across the country, the steep escalation of housing prices has raised concerns about housing affordability, and whether the next generation of families can enter the housing market without financial assistance from parents and family.
Mustel Group/Sotheby’s International Realty Canada survey findings reveal further insight into how modern family homeowners utilized diverse strategies and funding sources in order to secure a down payment for a home.
Personal savings is the leading source of down payment funds for modern families across the Canadian metropolitan areas surveyed (71%). 52% reported financial gifts, living inheritances or inheritances as a down payment source, while 12% cited a personal loan from family and friends.
31% borrowed from RRSPs. 25% of families utilized proceeds from the sale of previously owned real estate towards the down payment of their home, while 11% applied proceeds from the sale of financial investments such as stocks and bonds.
11% relied on borrowing through a secured loan for their down payment, and 8% leveraged credit card borrowing.
The Impact of Financial Gifts
Findings from the Mustel Group/Sotheby’s International Realty Canada survey reveal that while a slight majority (52%) of modern families who purchased real estate in Canada’s major metropolitan areas relied on a financial gift, living inheritance or traditional inheritance as part of the down payment, 48% bought their home without any such assistance.
Notably, the proportion of funds received as a financial gift comprised less than a third of the total down payment for a significant share of families. 14% of responders indicated that a financial gift comprised less than 10% of their total down payment, while 10% of responders indicated that a financial gift comprised 10-19% of the down payment. 12% of families surveyed reported that a financial gift contributed 20-29% to their down payment.
17% of survey responders reported receiving a financial gift that made up 30% or more of their down payment.
Real Estate Market Confidence
As previously reported by Mustel Group/Sotheby’s International Realty Canada, confidence in the real estate market remans high amongst young urban Canadian family homeowners in spite of the financial challenges of purchasing a home. 78% believe that their home will either outperform or match the performance of their financial investments in the next five years, and 48% maintain that real estate will outperform financial investments.
The report is based on findings from an online survey of 1,743 families in the Vancouver, Calgary, Toronto and Montreal Census Metropolitan Areas (CMAs), with a focus on those where the adults are between the ages of 20 and 45. Over half of survey responders are Millennial homeowners, while the remaining represent homeowners from the younger segment of Generation X. The sample was weighted to match Statistics Canada census data on the basis of age, household income and home ownership within each CMA and to bring the total sample into proper proportion based on relative populations. While margins of error only apply to random probability samples, the margin of error on a random probability sample of 1,743 respondents is ±2.3 percentage points, 19 times out of 20. Data for this report series was gathered from August 9 to September 6, 2018.
About Mustel Group
Mustel Group has been a leading market research and public opinion research firm in Canada for more than 30 years, trusted by a wide range of the country’s most esteemed public and private sector institutions to design and conduct qualitative research, quantitative research and omnibus surveys in order to understand the thoughts and motivations underlying peoples’ emotions, opinions and
behaviours. For further information, visit www.mustelgroup.com.
About Sotheby’s International Realty Canada
Combining the world’s most prestigious real estate brand with local market knowledge and specialized marketing expertise, Sotheby’s International Realty Canada is the leading real estate sales and marketing company for the country’s most exceptional properties. With offices in over 33 residential and resort markets nationwide, our professional associates provide the highest caliber of real estate service, unrivalled local and international marketing solutions and a global affiliate sales network of approximately 970 offices in 72 countries and territories to manage the real estate portfolios of discerning clients from around the world. For further information, visit www.sothebysrealty.ca.
The information contained in this report references market data from MLS boards across Canada. Sotheby’s International Realty Canada cautions that MLS market data can be useful in establishing trends over time, but does not indicate actual prices in widely divergent neighborhoods or account for price differentials within local markets. This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information and analysis presented in this report, no responsibility or liability whatsoever can be accepted by Sotheby’s International Realty Canada or Sotheby’s International Realty Affiliates for any loss or damage resultant from any use of, reliance on, or reference to the contents of this document.
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