A few decades ago, getting started in the housing market seemed like a breeze, with the most difficult part being the task of finding the home of your dreams. Fast forward to 2022 and Canada’s housing market is on fire across the country with prices skyrocketing and average home values constantly increasing, despite the fact that the average wages for workers are not. The obstacles facing millennials entering the housing market are not so much tied to personal problems or hurdles, but a mix of societal, economic and political issues.

Homes Inventory Vs. Buyers

Many millennials (born between 1981–1996) have been saving up and dreaming about homeownership for a lot longer than other generations who were able to make the leap after only 5 years of saving on average. As they enter their 30s and are feeling more stable, they’re now driving the housing demand at full force. In fact, according to the National Association of REALTORS® (NAR), in the past year, millennials comprised the largest share of home buyers at 37%. Many of the new homes being built across the country are starter homes because the market simply can’t keep up with the demand as average home prices continue to rise across the country.

While the wealthier portion of millennials are better positioned to buy homes and are leading the way toward housing recovery, those who have just barely scraped by saving for a down payment are watching from a distance as their chances of being a homeowner in the near term seem less likely.

Builders need to catch up with supply to offset the current booming demand, which will lower the average home price and cool off the market to make things more affordable for millennials and younger generations who are waiting for their chance to dive in.

Home Prices

The price of homes in Canada today makes entering the real estate market as a millennial very difficult. Home prices continue to rise across the country while the average person’s earnings have been severely impacted by inflation. With prices soaring and wages staying stagnant, it has become nearly impossible for millennials to find homes they can afford, let alone succeed at purchasing them during a bidding war. According to Generation Squeeze, a millennial needs to work (on average) 14 years in Canada overall, 24 years in the GTA (Greater Toronto Area) and 28 years in Metro Vancouver to put a 20% down payment on a house.

To put that into perspective, in 1976 when the majority of baby boomers were coming of age as young adults, it took a typical young person 5 years of full-time work to save a 20% down payment on an average-priced home in the GTA, Metro Vancouver and many parts of Canada. What once was a very accessible housing market for previous generations has become somewhat of a battlefield.

Home Buying Obstacles For Millennials

What we see happening currently didn’t occur overnight, but slowly over the course of time. According to the U.S. Federal Reserve, when baby boomers hit a median age of 35 in 1990, they collectively owned 21% of the wealth in the U.S. Meanwhile, when Generation Xers (born between 1965-1980) reached 35 in 2008, they owned 9% of the nation’s wealth and in 2020 millennials owned just 4.6%. The wealth divide widens with each generation and is a byproduct of wage stagnation and income inequality.

While there are many obstacles being faced by millennials wanting to enter the real estate market to purchase their first home, there are a few that stand out:

Single Income (not married or partnered)
Not only have wage stagnation and income inequality become an issue, but the fact that some millennials are single and don’t have the ability to combine multiple incomes can make their journey to homeownership even more difficult.

High Debt
Going to school for longer has become the norm for millennials who pursue more experience in order to land higher-paying jobs. But with obtaining a lucrative job comes the need for more educational and workforce experience, which tends to bring with it the dreaded D word. The median debt for millennials reached $35,400 in 2016, compared to $19,400 for young Canadians in 1999 (Stats Canada). In fact, according to a 2019 report from TransUnion®, millennials have more than two times the debt of any other generation.

Stricter Lending Standards
While down payment requirements have gone down over time, stricter lending standards mean lenders are looking for borrowers with low debt-to-income ratios, high credit scores and long credit histories showing off their strength as a borrower. It’s not as easy to get preapproved for a mortgage as it was for previous generations as a lot of factors come into play that can be an issue for most millennials as they tend to carry higher debt and are working with lower average wages.

There are a lot of forces at play when it comes to why millennials are struggling to enter the housing market and they’re all part of a larger picture that incorporates current societal, economic and political issues. The fact is that millennials will continue to reach typical home buying age until 2040, so that means we could expect another two decades of high-priced homes if builders don’t catch up with demand and construction costs continue to skyrocket. Despite these factors, homeownership is still a desired outcome for many Canadians. If you want to get an idea of how much home you can afford, contact Rocket Mortgage.