In Canada’s overheated housing market, many aspiring homebuyers rely on financial assists from family members to pull together down payments. While that help enables the lucky recipients to enter the market, it also further entrenches the wealth gap, according to new research from CIBC World Markets Inc.
In 2021 the bank first examined the phenomenon of homebuyers financing down payments, in part, with gifts from their parents. In a new research note, CIBC revisits that study using internal data, which finds that, despite the market’s recent cooling, “the reliance on gifts is still an important source of down payments,” and that the size of these gifts is continuing to increase.
Specifically, CIBC reported that 31% of first-time homebuyers receive financial help from family members, up from 20% in 2015 “but relatively flat over the past few years.”
The size of these gifts has risen significantly, with the average gift now amounting to $115,000, which is up 73% from 2019, it said.
For existing homeowners looking to move to a pricier home, financial assists from family members are less common but also larger than for first-time buyers.
The report noted that about 12% of these buyers rely on gifts, and that these assists average $167,000. In provinces with particularly expensive housing markets, these gifts are even larger, averaging $189,000 in Ontario and $230,000 in British Columbia.
“Given the surge in home prices during the pandemic, it’s not surprising that gift amounts have risen sharply, and have risen recently despite the decrease seen in home prices,” the report said. It noted that, even with the pullback from the peak, home prices are up 33% from pre-pandemic levels.
“The increase in gift sizes has likely been facilitated by parents downsizing and reaping the benefits of high home prices upon selling their principal residence,” it said.
While this is helping the children of downsizing households to cope with the overheated housing market, “unfortunately, it is also contributing to a widening of the already wide wealth gap in Canada,” the report said.