For many, homeownership in Canada remains unattainable due to high prices and elevated mortgage rates, so how is it possible that the average mortgage balance is on a downward trajectory for young families?

According to TD Bank economist Maria Solovieva, one trend that has stood out for several quarters now in Statistics Canada’s Distributions of Household Economic Accounts is the steady decline in average mortgage balances of young families, even as mortgage debt has continued to rise for all other age groups.

Since the peak in Q3 2022, the average mortgage balance among households where the primary earner is under 35 years of age has fallen by $17,000.

Compared to Q1 2023, the reduction stands at $11,200. Over the same period, mortgage balances increased by $23,100 for households aged 55-64 and by $6,000 for those aged 65 and older. 

Fewer first-time homebuyers

“The drop among younger borrowers appears to be at least partly explained by a decline in young people entering the housing market or opting for less expensive homes due to affordability challenges,” according to TD’s analysis.

TD notes that household formation in this age group has surged, growing at 2.5 times faster than other age groups in the last two years – yet many of these new households remain renters. 

Higher equity positions?

Since Q3 2022, the total value of real estate assets has increased, while the total value of mortgages has declined, according to TD. 

This gap may be explained by the growing share of younger households owning their homes outright. 

TD notes that according to StatCan’s Survey of Financial Security, last conducted in 2023, at the start of the bank’s analysis, eight per cent of households owned their property free and clear. 

“That is the highest share on record. This trend may have persisted in subsequent quarters.”

A rise in prepayments

Another explanation for why average mortgage balances are falling is prepayment. 

“It’s very likely that some of the youngest households may be prioritizing reducing debt obligations in the face of the rise in the cost of borrowing since 2022.”

TD notes this raises another question: how are younger homeowners managing to fund prepayments?

Employee compensation and financial asset growth for young families has been “modest” compared to other age groups, it says. 

“This points to another potential source: financial support from older relatives,” says TD. “Indeed, as younger families reduced debt, older age groups – especially those nearing or in retirement – took on more. Yet there is no sign of increased ownership of investment properties or a spike in renovation activity that would typically justify increased leverage among these groups. That raises the possibility that some of this debt is being used to help adult children with homeownership.”

TD points to a recent Bank of Canada study, which highlights the growing role of parental support: over 20 per cent of first-time homebuyers received gifted down payments, with the youngest ones more likely to receive this assistance than their older peers.

“These gifts – whether drawn from financial assets or sourced through borrowing – lower children’s loan-to-value ratios, helping them qualify for mortgages and purchase homes that would otherwise be out of reach,” said TD.