Wealthy parents are driving the Vancouver real estate market

Realtors in Metro Vancouver say they’ve had a surprisingly robust summer compared with previous summers when buyers tend to go on holiday, and nobody wants to think about selling their property.

This year, they say, the market is driven by young buyers who are receiving help from their parents, both first-time buyers and those who are moving up from a condo to a townhouse or detached house. It means turnkey, family-size properties are selling faster than small homes or fixer-uppers. Buyers see opportunities in a softer market without competition from investors and builders, and in desirable properties that might have cost 10 or even 15 per cent more a few years ago. By gifting a down payment, parents help their kids qualify for mortgages they wouldn’t otherwise qualify for.

“We are dealing with informed purchasers right now, in broad macroeconomics, those parents whose heads aren’t in the sand and recognize it’s more than an avocado toast issue. Those folks are aware and calling,” said Royal LePage Wolstencroft broker and co-owner David Smith, a former pastor who immigrated from Scotland.

Mr. Smith, who specializes in the Fraser Valley, is a millennial father who can relate to young buyers and their parents. He said they’re increasingly hearing from parents who want to help their kids either get into the market or upsize. He sees parents not just helping with the first home, but with the next home, and the home after that.

“As an immigrant to the country, I know what that effort looks like. I’ve worked 80-, 90-, 100-hour weeks,” he said. “There is a mountain to climb here, and not everybody is going to be able to do so.

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“Parents, they’ve seen a substantial pullback, particularly when it comes to entry-level condos,” he said. “So they’re like, ‘Okay, well, this smells like opportunity. And not just opportunity financially, but from a lifestyle standpoint, to help balance things out a bit for my kids.’

“It’s now part of our onboarding process. Before we even sit down with someone for a consultation, one question we ask them is, ‘Is there anybody else participating in the purchase?’”

The transfer of intergenerational wealth is not new, especially in the pricey B.C. market. CIBC economists Benjamin Tal and Katherine Judge released a report two years ago on parents helping their kids by gifting down payments, an update from a 2021 report. They found that, postpandemic, around one third of first-time buyers relied on parental help, and an increasing number were relying on parents to help them upsize from a small home to a bigger one.

In B.C., the average down payment gift was $204,000, which represented a 90-per-cent spike since 2019. Upsizers in B.C. averaged around $230,000 in assistance. The average gifted down payment nationally is much lower, at $115,000.

A major incentive is that there is no tax on gifting a down payment, and the recipient doesn’t have to declare it as income. Insured mortgages are now available on homes up to $1.5-million, and the entire down payment can come from a gift. Parents are using either their own savings or tapping into their home equity through lines of credit. Lenders typically require a letter from the parents stating that they don’t expect repayment.

Vancouver realtor Jamie Clerkson said he’s seeing parents help with monthly payments instead of a large down payment. If the monthly mortgage payment is $4,000, they might cover half of that for a couple of years, which is more manageable than a one-time outlay of several hundred thousand dollars. He’s become accustomed to seeing parents at showings and home inspections, after the offer is made and before the conditions have been met.

“They’ll come look at the breaker panel, and check out the bones of the house. It’s what dads like to do,” he said.

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“The cost of Vancouver real estate is such that, even if you’re making six figures in Vancouver, the barrier to entry for that 20-per-cent down payment on a house that’s $1.5-million or $2-million is a big, big investment, and it takes a long time to save,” he added. “And the longer you waited to save, the prices got further away from you.”

Occasionally, parents who are helping financially might also want to be on title, even if it’s just 1-per-cent ownership. That way, he said, the parent is notified if their son or daughter tries to borrow against the property.

Some parents protect their gifts by requiring a co-habitation agreement stating that the gift remains with their adult child if they’re in a common-law relationship.

Mr. Smith said he’s handling a sale right now in which the parents are on title 1 per cent as co-signers. But many parents would rather not have their credit tied up with their kids’ credit, he said. Mostly, he sees parents gifting their kids.

“Often what happens is we start with the family, and they have these grand, frankly, delusional ideas about buying together. I would say we have about one a month, and they rarely work out because parents don’t want to compromise on their living space. There are only so many above-ground basement suites out there that they would be willing to sell their home for. So, that’s usually where it starts.”

The gift-giving is also creating a generational divide between those who are lucky recipients of a wealth transfer, and those who aren’t.

“I think there is that generational resentment, and I do see it come out for sure,” said Mr. Smith. “I think also there’s sometimes a willful blindness on the part of some of the generations that have benefited because everybody wants to believe, ‘I did this by pulling myself up by the bootstraps.’”

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Mortgage broker Alex McFadyen said he’s seen a reduction in the amount of money parents are gifting their kids, because the parents’ homes are also dropping in value.

“I do believe that with the reduced amount of equity available in homes, we are seeing a reduction in the monster gifts that we were seeing, because the parents are not able to sell their homes like they were in 2021 and 2022, for significant amounts of money.

“I don’t have stats for it, but I can tell you there is a notable difference in the amount of money these people are getting, even though they are still getting gifts.”

He said he’s also seeing young people who’ve had to sell because their parents, who co-signed with them on a mortgage at the peak of the market, can no longer afford the payments.

“They co-signed with their parents, and their parents helped them get in. Mortgage rates went up and the property values remained the same and they stacked on the debt and the parents can’t help them, so they just have to sell and they’re in debt.”

Mr. McFadyen said the gift-giving trend will end once the equity runs out.

“That train is going to end because there’s only so much equity available within the real estate market when it’s locked up. The reality is, there’s a lot of really wealthy people in Vancouver. But there are also a lot of people who don’t have that kind of money.”