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57 percent of Millenials, aged 25-30, will create new demand for homes; “Peak Millennials” will likely seek vertical condos in Toronto

Demographics is not an exact science, but the forces of aging are irresistable. According to Census data, millions of millenials, are in the target range for highly motivated “first time home buyers” — 25-30 year-olds. Two cohorts, demographically, are set to entirely change the real estate market: the millions of first-time-homebuyer “peak millenials”[2] and the down-sizing baby booomers with empty nests. Of these, the millenials dominates by sheer buying power as a group — especially with robust employment in the growing economy.

“With peak millennials as a group now reaching their late 20s, the number of people aged 25 to 30 is projected to increase 17 per cent in 2021 compared to 2016,” according to the Royal LePage Peak Millenial Study.

 

Data reveals that Peak Millenials — aged 25-32 — will become a major driving force in the real estate market. In Toronto, most of this group will buy high-rise condos.

 

According to this new study from Royal LePage titled Peak Millenial Study[3], high home values and job uncertainty may somewhat delay traditional demand from these millions — yet they remain the strongest cohort in terms of “potential purchasing power.”  The effect of this demographic cohort varies by province, but in Ontario — despite high home prices — the nature urge to leave the nest and create a home is expected to create a strong market force.

“Whether they choose to buy or rent, peak millennials will inevitably shape the housing market due to their sheer volume,” said Phil Soper, president and CEO, Royal LePage. “We expect demand from this demographic to put additional pressure on entry-level housing and investment properties being used to supplement the limited inventory of purpose-built rental buildings.”

 

57% of Millenials believe they will be able to buy a home in the next 5 years according to a study.

 

The desire to buy, however, is very high in this group, even if it means buying a tiny bacheler apartment. According to a Leger survey across Canada, 87% of Canadians aged 25-30 (Peak Millenials) belive home ownership is a good investment, and 69 percent hope to own a home in the next five years. 57 percent of 25-30 year olds expect they will be able to afford a home.

“Facing challenges their baby-boomer parents never encountered, peak millennials are confronted with significant obstacles that vary depending on where they live,” remarked Soper. “While finding employment in our largest urban markets, Toronto and Vancouver, is relatively easy compared to other areas of Canada, buyers face limited inventory and high home values in these regions. Where prices are more affordable, job markets can be more uncertain.”

Going vertical a likely lifestyle choice

Millenials have generally seek urban homes, close to work places, and are likely to be able to afford vertical homes — high-rise condominiums. Although condominiums have increased in price on low inventory in Toronto, it is still the most affordable solution — allowing the first-time buyer into the market where they can start building home equity. Although 61 percent of Peak Millenials in the survey preferred a detached home, only 36 percent believed they could realistically buy one at this stage.

“While peak millennials are becoming increasingly inventive in their quest for homeownership, careful attention to urban planning could help to alleviate some of their constraints,” said Soper. “By focusing on vertical living, and developing larger, affordable condominiums in urban markets, supply limitations would ease, providing long-term, appealing solutions to young buyers in search of affordable property.”

New mortgage rules — the so-called stress test — will also reduce the value of property that Peak Millenials can buy into. 49 percent in the survey said the “federal government’s new mortgage regulations have impacted the types of property that they can afford, effectively pushing them into highly competitive, lower-priced market segments.” This either means far suburbs and rural — for those determined to go detached — or high-rise condos in the urban areas.

72 percent of Peak Millenials in Toronto want to buy

The largest cohort of Peak Millenials is in Toronto, and they’re ready to leave the nest, at least within the next five years — 72 percent of them. Although high prices have delayed their purchase, 59% of them believe they will achieve their goal of a home in Toronto. Although other communities cost less, job opportunities are also correspondingly fewer. According to the report, as compared to other cities: “In the Greater Toronto Area, purchasers often receive significantly less for $350,000, netting a 910 sq. ft. condominium with 2.0 bedrooms and 1.5 bathrooms on average.”

To facilitate Toronto living for those not yet able to afford a home, there are unique options being floated that help them escape the nest, including unique ideas such as “shared ownership”, time share, and space conversions. [Related: see our story on Cohabitation experiment>>]

“To many peak millennials, entering the real estate market as quickly as possible is no longer just a good idea, it’s a must,” concluded Storey. “After witnessing significant home price appreciation occur for months, if not years, their perspective is that they must enter the market in the immediate-term to avoid being completely shut out, missing the opportunity to move up the property ladder, as they’ve seen so many do.”

NOTES

[1] Statistics Canada Census data.

[2] Dowll Myers, a U.S. economist first used the term Peak Millenial to define the largest cohort of the group. Birth dates between 1987 and 1993 definies this group.

[3] Royal LePage Peak Millenial study.

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