Canadian parents gave their children a total of $10 billion for down payments over the past year, a new report from CIBC Capital Markets says, a trend that’s driving up housing prices and wealth inequality.
Almost one in three first-time homebuyers received help from their parents to buy homes in the past 12 months, the report from CIBC deputy chief economist Benjamin Tal said. The average size of parents’ gifts was $82,000 after rising steadily from $52,000 in 2015.
The $10 billion in gifts accounted for 10% of total down payments, the report said.
“How do parents come up with this money? The narrative is that many of them get themselves into debt to support their kids,” Tal wrote. “The evidence, however, questions that assertion.”
Using Equifax data, he estimated that only 5.5% of parents took on debt to help their kids buy a home — most of them in the pricey Toronto and Vancouver markets. In most cases, though, as parent’s savings grew during the pandemic, so did the size of their gifts.
Tal noted the average gift size is “highly correlated” with home prices.
“Given the trend and the size of gifting, it is clear that this phenomenon is becoming an important factor impacting housing demand and therefore home prices in Canada,” the report said.
Wealth inequality between children who receive gifts and those who don’t is much more significant than the size of the gift, Tal wrote, “as it might make the difference between owning and not owning a house, with receivers potentially benefiting from future home price appreciation.”
Larger down payments also reduce the size of the mortgage, which leads to those who received gifts saving significantly on interest payments.
Parents are also helping their children move into larger houses, the report found. Almost 9% of “mover-uppers” received gifts, a total that’s trending down even while the size of the gifts increased to an average of $128,000 in September.
Not surprisingly, children buying in Toronto and Vancouver are receiving the most help. For the first three quarters of this year, the average gift for first-time buyers in Toronto topped $130,000, while mover-uppers received an average of $200,000. In Vancouver, those totals were even higher: $180,000 on average for first-time buyers and $340,000 for mover-uppers.