TORONTO Feb 3 Laura Parsons helped her son buy
his first home four years ago, and she's ready to help her
daughter do the same, making her part of what many say is a
growing trend across Canada, where home prices have soared 84
percent in 10 years.
"I am going to give her the downpayment," said Parsons, 54,
a mortgage banker in Calgary, Alberta, where an oil industry
boom has pushed home prices to record highs. "We're the baby
boom generation, we have more money than we ever thought we
would, we have two incomes, we're saving, so I'm going to help."
Neither the government nor the real estate industry has
collected data on parental aid to homebuyers. But experts say
they are seeing more moms and dads helping their children,
especially in the priciest markets.
"It is increasingly common in the city of Toronto, where
prices are pressing the limits of affordability, for most buyers
looking to get a foot into the market," said Steven Fudge, a
sales representative at Bosley Real Estate in Toronto. The
25-year industry veteran says at least 50 percent of his buyers
are bolstered by parental money.
A 2013 survey of 2,000 people for Bank of Montreal
found that 27 percent of first-time buyers in Canada expect
their parents or other family members to help them purchase a
That young adults need help with a first home should come as
no surprise. Home prices in Canada hit record highs in late
2013, according to the Teranet-National Bank house price index.
Industry data showed the average home price nearing C$400,000
($358,800) in December. That's up 10 percent from a year earlier
and 84 percent from December 2003, when the average price was
While the U.S. housing market is still recovering from a
collapse in 2008 that triggered the global financial crisis,
Canada's market never crashed. Partly that is because prices
didn't rise as much during the U.S. boom, as Canadian lenders
were more conservative than their U.S. counterparts.
Meanwhile, near-record-low interest rates over the past five
years have helped fuel gains in prices.
Many forecasters predict a weaker market once borrowing
costs begin to climb, and some warn of a U.S.-style crash. For
now, though, homebuyers - and parents willing to help them - are
Jackson Cunningham, a mortgage broker who specializes in
first-time homebuyers in Vancouver, Canada's most expensive
market, said some 75 percent of his clients get help from their
parents, typically with the downpayment.
"Most buyers are maxing out their affordability," he said.
"There is almost always a downpayment help from the parents.
That's very common and completely acceptable at most lenders.
Sometimes it is C$20,000, sometimes it is a couple of hundred
Help from parents to buy property is common in many
countries, and Parsons said her own parents gave her C$1,000 to
help her buy a home when she was starting out some 30 years ago.
But most observers say it is much more common in Canada.
Benjamin Tal, a senior economist at CIBC World Markets, said
that is the result of house prices rising far faster than
The overall effect of parental aid on the economy is
unclear, he said. While it has helped fuel demand for housing
and kept upward pressure on prices, it could dampen consumption
if it means the parents have to cut back on their own spending
to help their kids.
Most important, Tal said, the wealth of the baby boomers and
their willingness to help their offspring likely provide a
cushion in case of economic shock that might otherwise prompt a
wave of mortgage defaults, and even a housing collapse.
"The increased share of this kind of activity is giving the
housing market some more room to maneuver in case of an economic
shock," he said.
"What makes something bad is if it is unsustainable. Is this
sustainable? Probably. In fact, it is more stable than anything
else that I can think of. So I think it is a good thing."
Tal and Parsons, herself a mortgage lender for Bank of
Montreal, both say it makes sense for parents to help with the
downpayment, leaving the mortgage payments to young home buyers,
who would otherwise be paying the same monthly amount in rent.
While Canadian house prices are so high as to make downpayments
unaffordable, mortgages rates are near historic lows.
Buyers in Canada must put at least 5 percent down on a home,
and can only avoid costly mortgage insurance by putting 20
A typical two-story house cost an average of C$422,800 in
Canada, C$652,700 in Toronto and C$851,200 in Vancouver as of
the second quarter of 2013, according to the RBC Affordability
Real estate agent Fudge said helping the children allows
parents to pass on wealth while they are alive, avoiding taxes
while getting to see the result of the inheritance.
"It's a strategy on the part of the savvy parents. By
gifting the money, most of them are saying to me, 'We don't want
our children to have to pay tax on their inheritance. Why am I
waiting another 30 years for my kids to get the money when I
die, when it can be put to use now?'"
Parsons, who with her husband has given each of their
children about C$18,000 to buy or prepare to buy their first
homes in Calgary, said making a downpayment - but not helping
with monthly mortgage payments - just makes sense.
Before her son, a mechanic, bought a house four years ago,
she set him up to pay rental income in an apartment the family
owned, training him to get used to a monthly payment.
"To have their own house is the best building block they can
start with. My fear is they will rent a lot longer than they
should just because of the fear of homeownership," she said.
"After all, I can't take it with me when I go."