Wage gap not forcing buyers to invest

by Olivia D'Orazio24 Sep 2014
A report released Tuesday by the Conference Board of Canada that drew attention to the growing income disparity between Gen Yers and their baby boomer parents has some analysts claiming that the wage gap is leading buyers to more cautiously enter the housing market.

But, two respected Toronto agents are putting the kibosh on speculation that a growing number of first-time homebuyers are testing the real estate waters by first purchasing investment properties.

“Many first-time homebuyers are just happy to buy a new home,” says Century 21 Realtor Merilyn McCart.

Re/Max Realtor Ron Smith agrees, saying, “The first-time buyers, from what I’m seeing, are buying for themselves as live-in properties.”

Entering the real estate market is a lot harder now than it has previously been. Despite enjoying significantly lower interest rates than their parents did, millennials are forced to contend with average home prices which have risen to nearly four-and-a-half times the disposable income of the average household in 2011, up from about three times the disposable household income in the 1990s.

Generating that kind of cash flow is especially difficult for GenYers just entering the workforce, leading to the delayed purchase of a home. The Canada Mortgage and Housing Corporation says that the average age of a first-time homebuyer in Toronto has been about 37 for the past decade. The CMHC also expects it will be at least 2016 before the first wave of Gen Yers start to enter the housing market in meaningful numbers.

But McCart and Smith agree that it might be smarter to take advantage of low interest rates and purchase a home sooner than later.

“Historically, it’s always better to buy if you’re able,” Smith says, “there’s no doubt about that.”

He says those low interest rates, along with fewer homes for sale, continue to heat the market. That high demand is making it difficult for first-time buyers to find a property, but he urges buyers to stick with it.

“It’s just a matter of time and patience,” he says.

McCart, meanwhile, says that it’s difficult to actually make money on investment properties in the current economic climate.

“Tenants can only afford so much,” she says, adding that purchasing a property with a rental suite in the basement, perhaps, can offer buyers the best of both worlds.
 

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