According to a recent report, a growing number of young urban families are postponing saving for their retirement in order to save up enough for a down payment on a home.
The latest report, Modern Home Ownership Report, by Sotheby’s International Realty Canada is prompting concerns. Economists and government officials are worried about how these families will finance their retirement. However, these same critics aren’t at all surprised that young families in Canada are prioritizing home ownership over retirement savings.
Part of the impetus is that homes can be enjoyed now and there is a belief that real estate will only increase in value over time, while retirement is still far into the future.
One reason families are prioritizing home ownership is the recent gains in home values over the last decade. The increase in home values during this time could explain why confidence in the real estate market among families surveyed in the report remains high with 78% of those surveyed stating they are confident that their home will either outperform (or at the very least match) the performance of any other financial investment they plan on making, such as RRSP contributions.
Tapping into RRSP to buy a home
According to the report, 20% of all “modern families” surveyed admitted to delaying their RRSP contributions in order to achieve their homeownership goals, while 31% have tapped into their RRSP savings in order to make their first down payment.
In fact, RRSP contributions from 25 to 54-year-olds have gone down in recent years. Statistics Canada reports that RRSP contributions among that age group decreased by 16% between 2000 and 2013. Admittedly, it’s impossible to know for sure if that drop in RRSP contributions is directly tied to young professionals deciding to save for their down payment or simply dedicating those funds towards different vehicles of investment but it does give us a glimpse of the many challenges modern families have to face when it comes to balancing their financial goals with their limited financial resources.
Finding ways to save to buy a home
The most common measure taken by modern families to save up for their home down payment is eliminating or reducing non-essential spending. Out of the 1,743 families surveyed, 51% reduced or stopped dining out, 45% eliminated or reduced vacations, and 45% eliminated personal expenditures, such as new clothing or new electronic gadgets.
But measures didn’t stop at lowering non-essential expenditure. A large number of modern families are also taking lifestyle adjustments in order to save up for home ownership — 20% of those surveyed delayed saving up for their retirement, 19% sought jobs with a higher salary, 14% took on part-time or freelance work to supplement their full-time job, 12% delayed having a child and 9% moved in with a family member.
Sure, the incredible climb in housing prices in major metropolitan markets across the country also had the effect of lowering housing affordability. And while stricter mortgage rules and interest hikes have helped cool off the market, and even cause prices to drop, home ownership still remains difficult to achieve. However, that still hasn’t deterred buyers. Homeownership still remains a staple of the Canadian dream for young families.