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Home Ownership Trends: Down Payments Over Retirement Savings

Rising housing costs are forcing many families across the country to change their financial habits, including postponing saving for retirement.

And the biggest barrier to buying, according to 33% of respondents to a survey commissioned by Sotheby’s International Realty Canada, are the day-to-day expenses like rent, groceries and utilities. The figure was even higher in Toronto (35%) and Vancouver (37%).

“The dream of home ownership remains compelling for today’s young families, but the reality is that many are facing serious obstacles to achieving this given rising costs of living, rising costs of housing, and other financial needs, such as saving for retirement,” Brad Henderson, president and CEO of Sotheby’s International Realty Canada, said in a release.

“In an environment of higher interest rates and tighter mortgage guidelines, today’s families will continue to confront new challenges as they make home-buying decisions in this year’s market.”

Retirement Savings Take a Back Seat

One in five homeowners say they have postponed saving for retirement in order to achieve home ownership, as they feel forced to choose between one or the other. Calgary homeowners are the most likely to delay retirement savings in favour of building up a down payment (23%).

Retirement savings were also tapped for down payments by 31% of respondents who took advantage of the government’s Home Buyer’s Plan. Under the plan, homeowners may withdraw up to $25,000 of RRSP savings to finance the down payment of their home, though the money must be repaid within 15 years to avoid tax penalties.

Other Down Payment Sources

The largest source of down payment funds continues to be from personal savings. A full 71% of respondents said they used personal savings to fund their home purchase down payments.

This is higher than the 52% cited in Mortgage Professionals Canada’s mortgage survey last month.

Other sources included:

  • Financial gifts from family (52%)
    • 17% reported receiving a gift that made up 30% or more of their down payment
  • RRSP withdrawal (31%)
  • Proceeds from the sale of a previous house (25%)
  • Loan from family or friends (12%)
  • Sale of investments such as stocks or bonds (11%)
  • Borrowing through a secured loan (11%)
  • Credit card borrowing (8%)

Saving Strategies

Home prices have risen significantly over the last several years, greatly increasing the size of down payments needed for home purchases. More so for those wanting to put down at least 20% in order to avoid CMHC mortgage insurance premiums, which can be as much as 4% for down payments of 5-9.99%.

Despite higher home prices, last month’s mortgage survey from Mortgage Professionals Canada found that 20% was the average down payment made by first-time buyers in recent years.

For those determined to save up enough for a 20%+ down payment on a home, they employed a number of cost-cutting strategies into their lives.

In addition to minimizing non-essential lifestyle spending, respondents to the Sotheby’s survey said they also:

  • Reduced or eliminated dining out (51%)
  • Reduced or eliminated travel and vacations (45%)
  • Sacrificed personal expenditures such as clothing and technology (45%)
  • Reduced or eliminated health and fitness expenditures (37%)
  • Reduced or eliminated car ownership (15%)

In major metro areas, where home prices are typically the highest, urban families also reported:

  • Securing a job with a higher salary (19%)
  • Taking on part-time/freelance work (14%)
  • Delaying having a child (12%)
  • Moving back with family (9%)

Confidence in Real Estate

Given the amount of personal financial sacrifice required for today’s average down payment and home ownership, it’s not surprising that a majority of homeowners continue to have confidence in the real estate market.

A full 78% believe their home will either outperform or match the performance of their financial investments over the next five years, with 48% believing real estate will outperform their investments.

Confidence in the real estate market was highest amongst Montreal homeowners, while those in Calgary were the most pessimistic, with 20% of homeowners believing real estate will perform worse than their investments.

The survey was based on responses from 1,743 families between the ages of 20 and 45 in Canada’s four largest metro areas; Toronto, Montreal, Vancouver and Calgary.