Thirty per cent of first-time homebuyers in Canada have received down payment help from the vaunted bank of mom and dad in the last 12 months, says a report from CIBCs Deputy Chief Economist.
Benjamin Tal’s analysis -- an update to his previous report that flubbed some of the numbers -- also determined that the share of first-time buyers receiving parental support increased by 10% in the last six years, and while the share of recipients has been flat through the pandemic, the average gift size rose from $52,000 to a record $82,000 during the period.
“First-time buyers are not the only ones receiving gifts,” the report said. “Just under 9% of move-uppers also receive help. While that share has been on a declining trend, the size of the gift has risen dramatically to reach $128,000 in September 2021.”
The report also says gift sizes were largely determined by home prices, adding that the average gift size outstripped home inflation, averaging 9.7% per annum in each of the last five years, which is fully two percentage points faster than home price growth. Moreover, at least two-thirds of first-time homebuyers used parental gift money averaging $104,000 -- it was $157,000 for move-up buyers -- as the primary source of their down payment. The CIBC Capital Markets report estimates that, comprising 10% of total down payment money, gifting broke the $10 billion mark in the most recent 12-month period.
Unsurprisingly, Ontario and British Columbia, Canada’s most expensive provinces for housing, had the largest shares of gifting, the report noted. During the first nine months of the year, the average gift for first-time buyers in Toronto averaged $130,000, while it was $200,000 for move-up purchasers while in Vancouver it was $180,000 and $340,000, respectively.
Citing data from Equifax, the report cast doubt on the notion that parents incur debt to gift their children’s down payment money, stating that’s only been the case for an estimated 5.5% of parents this year, albeit still more than in 2019. Instead, it is most likely they’re using their savings, which surged because of pandemic-induced lockdowns that precluded most possibilities for non-essential outlays.
Tal’s report also suggests that, while gifts narrow the wealth chasm between parents who do and don’t provide them, it expands it between their children, some of whom might not be able to own a home. Moreover, gift recipients will additionally prosper from future home price growth and, through a reduction in mortgage size, interest payment savings.
