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Canada’s real estate market forecasts a strong spring – supercharged by the bank of mom and dad

Economist Benjamin Tal is forecasting a strong spring market in Canadian real estate and, with it, an even larger presence for the “bank of mom and dad”.


“You basically see people trying to get into the market before it’s too late,” Mr. Tal says. Parents have become increasingly generous in recent months as they pull out the stops so their adult children can buy a first home or move up to a better one. FOMO – fear of missing out – has infused the market with interest rate hikes on the horizon. Mr. Tal, deputy chief economist at CIBC World Markets, says the share of first-time buyers receiving help from parents has been climbing steadily to about 30 per cent at the end of the third quarter last year from about 19 per cent in 2015. His most recent data show the share of young buyers receiving gifts had edged up an additional one per cent by the end of 2021. The gifts have been getting larger as the average price has soared. Mr. Tal says the parents injecting cash have not been motivated by the pandemic as much as the trajectory of prices. The size of the average gift had jumped another $10,000 by December from the $82,000 earlier in the fall. In a market as richly priced as Toronto, that gift was more likely to be in the $130,000 range last year. Parents are also sharing their abundance with adult children who simply want to improve their living circumstances now. Mr. Tal warns that older generations should be cautious about being too generous with their gifts – whether they are handing over cash, signing on as a guarantor on a mortgage, or buying an investment condo for a young child’s future. Mr. Tal at CIBC is forecasting that the Bank of Canada will begin to raise interest rates in March. The economist expects the growth in real estate prices to slow in the second half of 2022 as rates rise. A gradual increase in rates would moderate demand and prove healthy for the market, in his opinion. Mr. Tal believes population growth and limited supply will cushion real estate prices from a correction. But he cannot rule out a pullback after the unharnessed run-in prices, he adds. “When prices go up by 20 or 25 per cent during the course of a year there’s always a risk. One possible trigger would be a faster pace of rate hikes than Bay Street is expecting. Currently, the narrative shared by many economists is that the supply chain issues will clear up and inflation will subside. But there is also the chance that narrative won’t play out as predicted, he cautions.  Mr. Tal notes that economic downturns in 1990 and 2008 were triggered by central bankers raising rates too quickly. “That can shock the system.” He cautions that parents who want to help their children should not do so by jeopardizing their own finances. 

“I definitely suggest that they should not take on a lot of debt,” he says. “If you get yourself into a situation where you are risking your retirement, think twice.


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