Being an owner rather than a tenant changes everything when you retire. But you still have to have access to it.
In the 2023 version of its Retirement Readiness Barometer, human resources firm Mercer focuses on millennials. If they display a renter status during their career, the workers of this generation Y, made up of people born between 1980 and 2000, must save 50% more than the owners if they want to have sufficient income in retirement. . The analysis shows that to obtain a reasonable income in retirement, a millennial who rents throughout his career would need to save eight times his salary in order to be ready for retirement, and retire at age 68. This same millennial, if he owned his home, would only need to save 5.25 times his salary, and could retire three years earlier, at age 65.
Mercer defines retirement readiness as a 75% chance of not running out of money before death if an appropriate level of income (69% for millennials, including government benefits) is maintained throughout life. retirement.
This observation assumes that the Generation Y worker has a starting salary of $60,000 and that he contributes 10% of his monthly salary to a savings plan from the age of 25, which, from the outset , is intended to be a level of savings that is rather difficult to achieve and maintain for young workers. Hence the importance, for the latter, of being able to benefit from a pension plan in which the employer contributes. It must also be placed in the perspective of deteriorated housing affordability and upward pressure on the cost of living leading to an increase in consumer indebtedness.
Market still unaffordable
On the affordability side, let’s go back to this recent reading from the National Bank indicating an improvement in affordability in Canada in the fourth quarter of 2022, for the first time in nine quarters. The explanation comes from a decline in housing prices for a second straight quarter and the continued rise in personal and household incomes. This was enough to offset the 17 basis point increase in the benchmark five-year mortgage rate used in the fourth quarter calculation.
Nevertheless, the median housing is still not affordable in Canada, with a mortgage payment as a percentage of income of 64.6%, the highest level since 1981. For Montreal, this weight is 47.2 %, far above the 20-year average of 30.7% for this city. It was 51.8% for a residential property not held in the form of a condominium, 35.9% for a condo. For a first-time buyer, with a representative home price of $575,170 for a non-condo and $398,420 for a condo, it took 52 and 32 months respectively to accumulate the initial down payment assuming a savings rate by 10%.
In Quebec, that mortgage payment as a percentage of income was 31.2% at the end of 2022, also well above the long-term average of 23% for that city. For a first-time buyer, at the price of a representative dwelling of $373,172 in the non-condo and $253,390 in the condo, it took 29 and 19 months respectively to raise the initial down payment.
No rush of sellers
And while March’s data show renewed activity among potential buyers, fueled by the Bank of Canada’s pause in key rate hikes, sellers are not rushing into the market. According to data from the Canadian Real Estate Association, while sales rose month-over-month in March for the second month in a row, new listings remain at their lowest level in 20 years . Seasonally adjusted, they totaled 53,298 in March, down 5.8% from February. The actual number of new registrations reached 68,597, down 27.4% from the same month a year earlier. Robert Kavcic, senior economist at BMO, explained that unlike previous real estate corrections, few homeowners are being forced into a forced sale due to the strong labor market and low rate of delinquent loans. .
In a blog from Financial Post, the economist notes in particular that in the case of variable rate loans, financial institutions have generally responded to the passage of the mortgage rate from below 2% to beyond 6%, in the wake of the muscular monetary austerity of the central bank, by extending the amortization period of the loan. Added to this is the repayment capacity of borrowers as measured by the application of the minimum admissible rate within a mechanism for verifying the capacity of borrowers to pay their debts. Added to the equation is the influence of immigration on the residential real estate market.
Robert Kavcic says the sales-to-new listings ratio was 63.5% in March, up more than ten percentage points in two months, keeping the market in a seller’s zone. There was 3.9 months of inventory on the market last month, down from a pre-pandemic level of 5 months.