It seems like chat around the office water cooler or photocopier always seems to revolve around Real Estate. A question that commonly comes up is that given the state of our economy in Canada, “Where is all of the money coming from for people to buy houses?”
Mortgage, loans and lines of credit rates are up as well as the interest rates for credit cards. Inflation is at record levels, and many have still not recovered financially from the pandemic. So, where the heck is the money coming from?
Before we unpack where people are finding money, let’s look at a seismic change that will impact Real Estate sales over the next decade. This quote is from the New York Times on Sunday.
“Americans 60 to 78 years old hold half of the nation’s wealth and will pass on $16 trillion of that wealth over the next decade to their children.”
When we convert this number as it relates to Canada where we have 13% of the US population, the wealth being transferred to kids sits at $2 trillion, 80 billion. These are staggering amounts, however with Baby Boomers aging, the money has to go somewhere, and the studies show that it will be the Millennials who will receive this windfall. Home ownership for Millennials 30-44 is 60% whereas 75% of the average Baby Boomers enjoy home ownership. If you picture a Whitby homeowner (baby boomer with 2 children) who has paid off their home and the value is in the $1,5000,000 range, each of the kids will get in the range of $700,000 each, even if there were no retirement savings. This will cause the Real Estate market to do several things over the next 10 years. With this future buying spree on the go, inventory will shrink, and values will spike making our “Real Estate crisis” even more challenging.
However, we are not there yet, so let’s take a few minutes to discover who is currently buying homes. Here is where the money came from for our last 10 transactions.
1) $900,000 – Clients sold and downsized. Downpayment – equity.
2) $650,000 – Client sold and downsized. Downpayment – equity.
3) $918,000 – Client sold and upsized. Downpayment – equity.
4) $1,137,000 – Client sold and downsized. Downpayment – equity.
5) $1,150,000 – First time buyer. Downpayment – savings.
6) $250,000 – Client sold in Durham region, purchased in New Brunswick. Downpayment – equity. (Paid cash for home.)
7) $502,000 – Client purchased in Newcastle. – Downpayment – estate.
8) $1,008,000 – Client sold and downsized. – Downpayment – equity.
9) $1,275,000 – Client sold and downsized. – Downpayment – equity.
10) $960,000 – Client sold and downsized. – Downpayment – equity.
It is apparent that much of the cash needed for down payments is coming from equity in current homes. Movement from home to home drives the market when rates spike and the economy falters. Only 2 of the clients we have worked with in 2024 moved due to the rates increasing. Most of the clients moved to improve their lifestyles, either by upsizing or downsizing. The Buyers who are less active are first timers and investors. Both of these groups are sensitive to the increased rates. My feelings are that it would take 5-year mortgages to drop from what they are currently, 5%, to between 3.5% – 4%. This would drop the carrying cost of a $900,000 home in Oshawa down by $600/month. (Assuming a 20% downpayment and a rate decrease from 5% – 3.5%.)
Last month, June, we had 877 homes sold across Durham Region. Even when the economy is a bit shaky and the rates are higher than they have been, homes still sell and that is exactly what is happening in Durham Region this summer.
However, over the next decade, when the Millennials get their hands on the wealth being moved on from the Baby Boomers, watch out. The “generational fairness” our federal government loves to talk about will happen naturally.
If you have any questions about either buying or selling, I can be reached at lindsay@buyselllove.ca or 905-743-5555.
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