Will a new Canadian program help millennials finally buy a home?

I originally spent 30 seconds stumbling around on Craigslist.com. Then, I stumbled on CloudWise.com, a venture investing platform located in Toronto that is launching a home-buying program called “Ownership 2.5.” The title, or what…

Will a new Canadian program help millennials finally buy a home?

I originally spent 30 seconds stumbling around on Craigslist.com. Then, I stumbled on CloudWise.com, a venture investing platform located in Toronto that is launching a home-buying program called “Ownership 2.5.” The title, or what I’d have expected to see if I were in high school and tech firms wanted to advertise their services, is the company’s effort to draw millennials who haven’t saved enough money for a down payment on a home by offering them access to a suite of services — from real estate agents to construction trades to financing and an apartment-finding algorithm — at 2.5 per cent per year, not to mention incentives such as cash back.

The 4 per cent annual interest offered by traditional Canadian banks on savings accounts is often prohibitive to younger Canadians, who have seen the value of their housing since the market crashed in the early 2000s. The post office and UPS both offered interest-free payment plans, and even credit card companies tried to entice people into the market, offering a 4 per cent introductory rate, but the interest payments were high enough to eliminate most people’s ability to live comfortably.

And yet there are still many young Canadians who are stuck in costly housing, even after they pay down the principal. How they end up in that situation is the crux of the ownership 2.5 program. Once it works in Toronto, where the average home costs $641,000, CloudWise plans to expand the pilot to other cities. The company is not disclosing the total cost of a home or how many people have signed up yet, but Mark McKinnon, CloudWise’s CEO, says he’s confident that there will be enough demand among prospective first-time buyers to make it worth the company’s while. “Given what I’ve seen over and over again,” he says, “if someone can live within a reasonable budget and be able to get into the market, there’s an opportunity here for both the homeowner and the lender.”

Back in 2013, McKinnon was working at the Royal Bank of Canada and helping out a fellow employee when one of his suggestions resulted in a $300,000 mortgage for a home in Canada’s most expensive real estate market. Although the banks said that was too high, McKinnon says that’s still enough to get a buyer into a home. His fellow employee stayed in Ottawa, bought a cheaper, more affordable house and moved back to Montreal, where the housing market has been far more accessible.

This is probably not the first time that someone will think that the way to make sure first-time buyers who aren’t currently working are able to buy a home is by making these people even more attractive to prospective buyers. As the Canada Mortgage and Housing Corporation (CMHC) pointed out earlier this year, today’s $6.6 million average Canadian home costs a third of what it did in 2003, but a two-income household makes up for that, even if the millennial who ends up buying a home in the future will make less than his or her spouse and has to spend more time doing housework or going back to school.

As Canada’s real estate market bounces back, more millennials are likely to find themselves looking to buy a home in the future, and the ownership 2.5 program will likely begin to play an increasingly important role in that process. Credit is a big part of this, and having more interest-free mortgages out there is bound to help make housing cheaper for everyone.

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