Wealth transfer already starting to drive Edmonton real estate sales

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The bank of mom and dad has long been a thing in Canada’s largest resale real estate markets, and gifts from parents for down payments have certainly had an impact in Edmonton’s market, too.

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Yet the impact thus far likely pales in comparison with the potential impact of hundreds of billions of dollars expected to pass from one generation to the next in the coming decade, a new study suggests.

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National realty firm Zoocasa recently published a report on the impact of the estimated $1 trillion in wealth that will transfer in the coming years from aging boomers to their adult children, often millennials and generation Z.

Yet according to one local realtor, the impact of that transfer is already evident.

“I’ve seen people who have received some sort of inheritance investing it in real estate either to get into the market or to acquire a rental property to generate cash flow,” says Drew Carlson, real estate agent with eXp Realty in Edmonton.

Often these individuals are more established move-up buyers, and an inheritance allows them to make that leap to a bigger home. In other instances, individuals are buying condominiums to rent for investment purposes.

Yet greying parents are also giving while alive to help adult children buy their first home, Carlson says.

“Many of these parents are downsizing from their (mortgage-free) detached homes,” he says.

“And then, they move to a condo, while gifting their kids money to purchase a first home.”

In its report, Zoocasa examined the impact of receiving a sizable gift — $200,000 — and how it would affect the ability of buyers to purchase an average-priced single-family detached home or condominium across several Canadian markets.

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In Edmonton, where the average price is $428,959, as cited in the report, $200,000 would cover nearly 47 per cent of the cost.

The study then used a 25-year amortization mortgage with a five-year, fixed-rate of 3.99 per cent to calculate the monthly mortgage payment which, in Edmonton, would be $1,203. In contrast, $200,000 in Victoria — the most expensive market listed — would be enough for a nearly 32 per cent down payment on the average-priced, single-family home worth more than $960,000. In turn, the monthly mortgage payment would be $3,995.

Zoocasa did not include Toronto and Vancouver in its analysis of single-family detached homes, given their average prices exceed $1.2 million, but it did include Canada’s two largest, most expensive markets in its calculations for condominiums.

Yet the methodology differed from single-family detached homes. Zoocasa also included the average monthly rent for a one-bedroom.

In Edmonton, the study cited the average rent is $1,400, but because the average-priced condominium is $191,413, a buyer with $200,000 could purchase the unit without a mortgage.

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By comparison in Toronto and Vancouver, where average prices exceed $700,000, a $200,000 down payment would cover less than 28 per cent of the purchase price. In both instances, the monthly mortgage costs would also be more than $300 higher than average rents.

Although the impact of the wealth transfer is already affecting the Edmonton market, its impact is somewhat different than described in the study.

Aging parents often “sell, downsize, and then help with down payments,” says realtor John Carter, broker/owner of Re/Max River City.

“But their kids are often then buying very different, newly constructed homes,” he says, adding others are also buying older homes and renovating.

“This really supports what we’re hearing, and that is that younger buyers don’t want homes like their parents had anymore.”

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