As the latest numbers from the London and St. Thomas Association of Realtors (LSTAR) show a significant drop in local home sales compared with this time last year, local officials are wondering how long it will take millennials to save for a down payment on a home in the city.
According to the latest figures, 451 residential properties “exchanged hands” last month, which LSTAR reports is a 44 per cent drop from the number of homes sold in November 2021.
This marks the lowest number of resident transactions in the past decade.
The average price of a home in the city last month was just over $615,000, down from an average of just over $640,000 in October.
LSTAR president Randy Pawlowski says the falling prices stem from rising interest rates, which “intensify buyer reluctance and weaken people’s purchasing power.”
Pawlowski says the local market is also in “correction mode” now that the socioeconomic conditions of the pandemic have changed.
But according to Paul Kershaw, of Generation Squeeze, a non-profit organization that advocates on behalf of young adults, “London is a frightening case study.”
“Between 2016 and 2021, you actually saw average home prices in the community double after adjusting for inflation,” he explained. “So, whereas for so much of London’s history over the last many decades, it would have taken four or five years for a typical young adult to save a 20 per cent down payment, as a result of the erosion of housing affordability over the last half a decade, now it takes 19 years.”
The provincial average is 20 years for 20 per cent down payment and the national average is 17 years.
For the younger demographic, Kershaw called these figures “horribly soul-crushing.” But “the flip side is those who have been homeowners in London over the last many years have definitely gained a lot of wealth recently.”
On Wednesday, the Bank of Canada raised its benchmark interest rate by half a percentage point to 4.25 per cent, the latest step in its efforts to tamp down inflation and the sixth recent hike.
Kershaw said that in the last nine months, home prices have “levelled off and dipped moderately.” But that hasn’t brought a lot of relief to young first-time homebuyers looking to enter the market.
“Home prices have dipped, but they remain at levels that are remarkably unaffordable for newcomers of any age and young people trying to get into the housing system,” he said. “Then the consolation prize is lousy because it’s been rising rents. In London, for instance, rents are up over $5,500 a year after adjusting for inflation, by comparison with when baby boomers started out as young adults.
“So, it’s good to know that homeownership prices are levelling off. We should actually be celebrating that,” Kershaw continued. “And we should then be saying, well, why did it take so long for interest rates to rise so that you try and dampen down home prices?”
He referenced Statistics Canada’s method of measuring the country’s overall inflation rates but pointed out the organization’s difficulty in recording accurate housing inflation rates.
“We lately have been talking about inflation because food prices and gas prices have gone up and StatsCan has been really good at reporting on that,” he said. “But for years in this country, we’ve seen home prices rise relentlessly year after year, and unfortunately, StatsCan didn’t tell us that because they don’t measure how much young people need to save to put down a down payment.
“They’re not really paying all that adequate attention to the total amount of money that needs to be borrowed to get into the housing market either,” Kershaw continued. “If you’re not paying attention to those two key factors, you are misunderstanding how harmful the housing system has become to young residents.”
Kershaw added that his hope with the recent report is to create informed conversations and encourage an accurate and accessible measurement of housing inflation.
“There is no silver bullet,” he said. “We’ve got the interest rates that had been rising because of gas and food prices. But what happens when we finally don’t have that kind of inflation again, are we going to risk losing control over home prices all over again? That would be terrible for a younger demographic and newcomers of any age.”
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