The Future of Homebuying and Intergenerational Capital

With competitive markets changing the life path many first-time homeowners envisioned, questions are being raised concerning the ideal role of parents in helping to facilitate equity ownership for young families.

According to the National Bank of Canada, low-interest rates are leading to rapidly inflating housing prices, along with a shift of inner and outer-city demographics following the COVID-19 pandemic in densely populated areas. As entry-level homes are quickly becoming outpriced for middle-class owners and property titles won over by sight unseen cash deals, how does an established generation best prepare their children for this demanding market?

Our certified financial planner Shyam Ganesh was interviewed for Insurance Portal’s monthly journal, where he and other financial experts in Canada weighed in on the possibilities for sharing intergenerational capital, as well as considerations for those families considering this path.

IS BUYING A HOME AS A YOUNG FAMILY STILL POSSIBLE?

In short, yes—but don’t expect it to be an easy process.

Having?strong financial planning ?is required for establishing a low-risk profile. With many bidders entering with considerable cash assets, the more robust your portfolio, the better chance you have at competing in the “new” fast-paced market.

Insurance Journal describes a situation where despite strong equity lines of credit from his parents, the $800,000 price limit (already over-budgeted for the market) of a young man was increased to over $1m following a period of rejected offers.

One can see in this instance that the significant equity of an older generation offers more flexibility when entering the market. Sadly, there comes the point where trades must be made between retirement concessions and long-term equity gains that parents may not be around long enough to see realized. In fact, some parents are concerned that they may not even break even in their investment, leading to significant stress as retirement funds take on greater importance.

THE DOWNSIDE OF PARENTAL INVESTMENT

As Shyam details, “I’m a little bit cautious about going to a family member for money. It depends on their liquidity, their ability to support their kids, and I encourage my clients to also be mindful of that.”

Across multiple cases in BC, Alberta, and Ontario, Shyam outlines a situation where transferring funds from parents to adult children brings added stresses for financial stability in aging populations. Long-term stability and the potential for equity gains in the younger generation cannot come at the expense of the material needs of the parents.

That is not to say that there is no way forwards. Shyam goes on to say in the article, “Where parents do have the resources to do it—without causing them stress in their retirement that they worked hard to get to—certainly it’s a great option that may depend on any inheritance they may receive, and it’s a win-win for everybody.”

In the end, it comes down to balance, precise fiscal planning, and high visibility in terms of payback strategies, long-term equity gains, and liquidity that honours both down payments and the immediate needs of family members.

Quotes for this article were provided by our interview with Insurance Journal—a resource for fiscally-minded Canadians and investment professionals. Learn more about intergenerational fiscal planning considerations and read the article directly at?Insurance Portal .

To discuss financial planning for your equity goals and to help actualize property ownership in competitive markets,?speak with our experts at Grow Your Wealth today . We proudly offer Canadians clear paths to financial success and help to solidify a long-term vision for their families and personal goals.