LACKIE: Many first-time homebuyers need help from The Bank of Mom and Dad

But, ironically, the increased buying power courtesy of mom and day is further fueling the rise in housing prices

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We talk a lot about how the Toronto real estate market is mad. About how anyone who owns property has now seen their net worth dramatically rise, particularly over the past 18 months. How in spite of historically low interest rates, between the stiff competition and eye-popping prices, buying into the market is harder now than it has ever been.

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We lament that today’s young people have to wonder how they’ll ever be able to afford property like the generations that came before.

And now that the average price of a home in Toronto is well past $1M, the line at which the minimum down payment for an insured mortgages kicks to 20%, first-time homebuyers are left to save for that down payment, all while the market drives prices up faster than they can save.

Such bleak prospects are precisely why we are now starting to hear so much about The Bank of Mom and Dad.

Family helping to launching their young is not a new concept. Once upon a time, gifting a chunk of money to newlyweds as they began their life together was common. This tradition continues today in some cultures.

But the Bank of Mom and Dad is a new phenomenon specifically referring to parents of adult children who step in to help out by contributing to down payments or beefing up a budget.

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In 2017, CMHC reported one-fifth of Canadian young adults had some form of financial assistance from their parents when it came to their down payment. In the years that followed as housing markets have heated up, particularly in the GTA, that number has increased substantially.

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Andrew Dreyer, mortgage agent with Outline Financial, concurs.

“Anecdotally, I would say that in the last couple of years in Toronto, 80-90% of first-time buyers now have some form of financial assistance from family,” he said. “The scale of the gift changes with the wealth level, but parents want to help out as much as they can, even if they don’t have much; they want to get their kids in.”

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In a presentation to mortgage industry insiders last week, CIBC’s Deputy Chief Economist Benjamin Tal reportedly described the average down payment gift as $180,000.

This is an objectively stunning number that should come as little surprise when you consider the extent to which rising housing prices have become detached from incomes. How else could these young buyers be swinging these purchase prices?

Parents of adult children, frustrated by their kids’ housing prospects, ironically now find themselves flush with equity in their own homes as the markets have exploded, therein pricing their kids out. Now even those who don’t have substantial savings or investment portfolios have access to cash via home equity lines of credit.

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When faced with the prospect of their kids and grandchildren having to move away because they’ve been priced out of the city, the motivation is clear.

And so the gap widens.

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Critics are quick to point out this further continues the divide between the haves and have-nots. For those with access to land, to property, to equity, this is functionally just a new trend in the intergenerational transfer of wealth, with the added bonus of being exempt from tax liability. If you don’t already possess real estate to draw from, you’re unlikely to be able to help your kids buy-in. And so the story goes.

The irony of all of this is, of course, is that the rising real estate prices are quite literally adding fuel to the rising prices. The Bank of Mom and Dad adds to buying power, which is what helps buyers meet with bidding war success, ultimately raising the bar and setting new prices to be beaten with help from mom and dad.

And for those going it alone? They’re either depressed or ragey at the state of things. Some will continue on. Others will join the cross-country exodus to more hospitable housing markets.

The final group has simply resigned themselves to waiting out the big crash to finally come and level things out once again. It’s hard to guess how long they’ll be on standby.

On Twitter: @brynnlackie

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