First-time homebuyers in Canada remain heavily reliant on financial gifts for down payments, even as economic conditions have tightened.
According to a recent study by CIBC, 31% of first-time buyers received family help for their down payment, a significant increase from 20% in 2015.
Despite a cooling housing market post-COVID, the average gift amount has risen to $115,000, up 73% since 2019. This highlights the ongoing critical role of family wealth in home purchasing, which is helping mitigate housing inflation, but is also widening the wealth gap, CIBC notes.
For those upgrading to larger homes, known as “mover-uppers,” 12% received gifts, with an average amount of $167,000, according to CIBC.
The correlation between gift amounts and home prices remains strong, with gifts continuing to increase even as home prices have fallen 14% from their COVID-era peak. This increase in gift sizes is likely facilitated by parents downsizing and benefiting from high home prices when selling their primary residences, according to the report.
In Ontario and British Columbia, where housing affordability is particularly stretched, 36% of first-time homebuyers received gifts, compared to the national average of 31%. The average gift amount in B.C. is $204,000, while in Ontario it’s $128,000.
Since 2019, gift amounts have increased by 90% in B.C. and 52% in Ontario, reflecting the high cost of homeownership in these regions.
Interestingly, mover-uppers in Ontario and B.C. are not more likely than the national average to receive gifts, but the amounts they receive are higher. In Ontario, the average gift is $189,000, and in B.C., it is $230,000, compared to the national average of $167,000.
This phenomenon helps mitigate the impact of housing inflation for buyers but also contributes to the widening wealth gap in Canada. As home prices remain high, the trend of relying on family gifts for down payments is likely to continue, highlighting the ongoing challenges of housing affordability in Canada.
OSFI achieves 85% performance rating
The Office of the Superintendent of Financial Institutions (OSFI) recently released its 2023-24 Financial Institutions Survey, providing insights into its performance from the perspective of various stakeholders, including banks and insurance companies.
The survey revealed an overall satisfaction rate of 85% with OSFI’s efforts to ensure financial system stability. Respondents praised OSFI for its clear regulatory guidance, with 78% finding it helpful. A full 80% of institutions expressed satisfaction with OSFI’s supervisory activities, indicating confidence in its oversight capabilities.
Timeliness and responsiveness were also highlighted, with 75% of respondents appreciating OSFI’s prompt communication and regulatory actions.
However, there are areas for improvement, with 28% of respondents recommending OSFI “streamline various initiatives” and/or “avoid duplication.” Another 28% suggested the agency “reduce the pace of new and updated guidelines” or allow for more time for the implementation of new guidelines.
Six percent of respondents requested “better communication/transparency/clarifications” in any future OSFI guidelines.
Consumer spending down as Canadians “tighten their belts”
Summer weather in June failed to bring about an increase in consumer spending, according to RBC’s latest Consumer Spending Tracker.
The analysis of recent data found the recent jump in consumer spending on discretionary goods and services in April and May reversed in June as consumers “tightened their belts.”
“On a per capita basis, real spending on consumer goods declined for the first time since Q3 last year, and we don’t expect a turnaround in the near term,” report author Carrie Freestone wrote.
“While the Bank of Canada’s cutting cycle is underway after an initial 25 basis point cut in June, interest rates are still very restrictive as homeowners grapple with the impact of mortgage renewals,” she added. “It will take time for the impact of BoC cuts to ease consumer pain.”
Consumer behaviour has shifted notably with Canadians prioritizing essential expenses over luxury items. This trend was evident in the reduced expenditures on dining out, entertainment and travel, sectors that usually thrive during the summer months.
The sluggish housing market also further dampened consumer spending, with fewer home sales and a slowdown in new home construction affecting related purchases.
Consumer spending on housing construction has been consistently declining since spring 2022, coinciding with the initial rise in interest rates, as illustrated in the following chart:
RBC doesn’t foresee a turnaround in consumer spending until the fourth quarter of this year, contingent on further anticipated rate cuts from the Bank of Canada.
“Interest rates remain high despite the Bank of Canada initiating an easing cycle earlier this month,” Freestone noted. “Consequently, average debt servicing costs as a share of household income are expected to stay elevated for some time.”
US GDP comes in hot
U.S. economic growth surprised to the upside late last week, giving markets reason for pause concerning the current rate-cut expectations that are priced in for the U.S. Federal Reserve.
Real GDP growth south of the border came in at a hot 2.8% quarter-over-quarter, up from 1.4% in Q1 and well above the 2% that was expected for Q2. This was driven by a 2.3% increase in consumer spending, while durable goods spending was up 4.7% in the quarter.
Core inflation measures eased to an annualized 2.9% from 3.7% in the first quarter, balancing out the hotter-than-expected headline reading.
“The economy appears to have performed at (or somewhat above) potential growth in the first half of 2024, making it difficult to ascertain if consumer inflation is currently on a sustainable path to 2.0%,” noted BMO Chief U.S. economist Scott Anderson.
The data comes in just a week ahead of the next Federal Open Market Committee (FOMC) meeting on July 30-31, in which markets are currently expecting yet another rate hold.
Instead, markets expect the Fed will likely cut rates by 25 bps at its September meeting, with Scotia Economics suggesting another one to two additional cuts are possible by the end of the year.
A recap of last week’s headlines:
Will the Bank of Canada deliver another 175 bps in rate cuts? TD and CIBC say yes
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Vast majority of Greater Toronto new condo investors losing money every month: report
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Prime rate falls to 6.70%, making variable rate mortgages more attractive
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Following Bank of Canada rate cut, Macklem says it’s “reasonable” to expect more
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Here’s why markets are betting on a Bank of Canada rate cut
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90% of B.C. communities adopt province’s plans for more small-scale housing
Read more
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Last modified: July 29, 2024
