Are baby boomers buying homes for their kids?

The latest report from credit specialist, TransUnion Canada, found that mortgage activity across Canada is slowing, but those aged 54 years and up are bucking the trend.

In the first quarter of 2018, Canadian mortgage activity slowed 3.4% year-over-year, following an 8.8% decline in the fourth quarter of 2017. The greatest decline in mortgage activity was in Toronto, falling 17.6% year-over-year in the first quarter of the year. The strongest growth in mortgage activity was in Ottawa, jumping 8.4%.   

TransUnion suggests the mortgage stress test and rising interest rates are causing the slowdown because buyers either can’t afford as much home as they want or are sitting on the side lines to see where the market is headed.  

“We’re seeing some really interesting dynamics play out in Canada when it comes to consumer debt,” says Matt Fabian, director of financial services research and consulting for TransUnion Canada. “While consumer non-mortgage debt continues to rise, the rate of growth is slowing, and serious delinquency rates are down. This is happening even as some consumers may face pressures from increased costs due to tariffs.”

“Also, interest rates continue to rise, which can often put strains on the consumer wallet,” he adds. “As a result, some consumers may be more cautious in adding to current debt levels as the cost of borrowing increases. However, prior TransUnion research has shown that the impact of rising rates may not be as great as some pundits might suggest. This, combined with growing net worth and low unemployment, point to continued strong Canadian credit performance.”

Mortgage activity among Generation Z (ages 18-23) dropped 22% year-over-year in the first quarter of the year. Mortgages among Millennials (ages 24-38) fell 19%.

While younger generations struggle to afford a home in Canada, older generations are seemingly taking out mortgages left and right. The Silent/Pre-War Generation (ages 73-93) saw a 65% increase in mortgages issued, year-over-year. Mortgages among Baby Boomers (ages 54-72) jumped 18%.

There are a couple things that can be happening here. The older generations could be remortgaging for retirement, or they are helping their kids and grandchildren with home purchases.

This doesn’t necessarily mean the younger generations are having homes bought for them. Boomers could be investing in small homes and/or condos for their kids to live in, and have them paying the mortgage (rent). This is a smart way for older generations to invest without the responsibilities of being a landlord.

As home prices show no sign of slowing down in 2019, we won’t be surprised if boomers continue to take out mortgages as Gen Zers and Millennials struggle to enter the market.