Toronto Market Being Helped Out by Mom and Dad
Earlier this year, CAAMP came out very vocally against Finance Minister Jim Flaherty saying that the mortgage rules that were put in place weren’t helping the market, but they were in fact hurting first-time buyers; and it was those buyers that needed help. Now, they’ve gotten it, and the help hasn’t come from the government. It’s come from mom and dad.
It’s a trend mortgage broker Jake Abramowicz has seen more and more in the Toronto market. And as he sees more and more flood into his office armed with money from mom and dad, he has something to say to those that don’t have that same kind of leg up.
“I tell them: You guys are really doing something special. It’s really hard to pay rent in Toronto, pay off student loans, and save money for a down payment on a home. You should be very proud of yourself.”
That’s because, he says that the majority of his first-time clients – a whopping 75 per cent – are coming in with a gift letter from mom and dad, the document that indicates just how much buyers are receiving from their parents.
“I see deals where parents are contributing $50,000, $100,000, $400,000. The mom of one of my best friends sold her farm for $2.5 million and gave him $450,000. He bought a condo in Liberty Village for cash,” Abramowicz says.
“He works very hard and he knows he’s fortunate.”
But, he says, this help that kids are receiving isn’t usually asked for. Parents come into the picture after they’ve watched their children struggle for years trying to come up with a down payment. Once they find that they’re never going to get there on their own, in a market where prices climb higher by the day and when it’s becoming harder and harder for anyone to get a mortgage, they come in. Those parents are of the group that have been benefiting from those climbing equities – and climbing values – and now they want to pass on some of their good fortune to their hard-working, but less fortunate children.
Benjamin Tal, deputy chief economist at CIBC World Markets, says that he’s noticed this phenomenon happening for the past several years. And while he’s wanted to study into it more, he says that there is simply not enough data, and not enough ways to understand just how much money is coming from the parents.
But he does know one thing. This new trend has helped to prop up the Canadian market.
“The housing market would have been much weaker if we didn’t have this phenomenon,” he says. “There’s no question about that. I’d say this generation is getting more help than any other generation did, but I’d say they need this help more than any generation, too.”