The Dream, you need to own a home.
That’s the imperative ingrained in our culture, for the United States and Canada especially. It’s treated almost like a right, instead of a privilege. For whatever reason, it’s become synonymous with adulthood, responsibility, raising a family and “making it.” Somehow cordoning off a piece of the world and having a building on top that is legally yours represents a tremendous badge of honor. Many grow up dreaming of this kind of life: What they want their house to look like, what the backyard will look like, what kind of neighborhood. And that’s all fine, but there are some limits to that dream. For millennials and younger people generally, as you probably already know, this dream has become more and more unattainable compared to their parents’ generation, especially in the Toronto market, in which I work. As a real estate broker, people in their 20s and 30s always want to talk to me about the housing market, simply because it’s hard for them to get in it. And my advice is to stop fixating on ownership. Do you want to own because the rest of society thinks you should? Or do you want to own because it works best with your lifestyle? I tell this to my clients, and sometimes – honestly – I think they’re going to hit me!
Quantifying the Dream
It turns out people have tried to quantify the dream. Why wouldn’t they? Knowing people’s preferences means better marketing. According to a CIBC study, 94% of 18 to 37 year-olds who are currently renting or living with family members have aspirations of owning a home. 94%! That’s a lot of potential mortgages.
But how unrealistic is that dream? After all, people still buy houses and condos all the time. Otherwise, the prices wouldn’t be so high, right? Well, the same study indicates that only 23% of in that age group have half or more of their down payment saved up. They’re on their way. But 45% haven’t even started saving yet!
Back in my day…
There’s a tempting “back in my day” mentality trap that previous generations tend to fall into when it comes to comparing the younger people of today. This is even more apparent when it comes to economic achievement. Not too long ago, someone with a decent job could get home easily. “If I did it, so can you!” they say. As we all know, that asset proved to be a highly valuable investment.
But taking Toronto for example, the average home price in 1981 (adjusted for inflation in 2018 dollars) was about $246,000.00. But if you check out homes for sale now? Today the average price for all home types is around $840,000 (as of June 2018). It’s more than tripled! Way more if you want a detached house at $1.2 million.
It’s crazy to think just because you did something ages ago, someone else can now.
This unrealistic expectation was famously exemplified when real estate mogul Tim Gurner derided millennials for complaining about housing pricing while spending money on avocado toast and lattes. Admittedly, he’s not an old guy, but he’s fallen for the same fallacy. He seemed to suggest that if such luxuries were avoided, homeownership could be yours! Unfortunately, the numbers don’t stand up to scrutiny, as this down payment online calculator by David Rudin suggests, little things like avocado toasts and lattes are just that: Little things.
Benefitting from their historical circumstances, many boomers see their house as a retirement plan. Work until 65, sell the million-dollar downtown detached home, and then live off the interest for the rest of your life.
But who is supposed to buy those homes? Millennials who have less job security than their parent’s generation? And 45% of whom haven’t started saving for a down payment?
Our Ownership Obsession
The cost of living has gone up and wages have not kept the pace. Census data shows homeownership has only dropped by about 5% for the 20s and 30s cohort compared to 1981 nationally in Canada. That was a huge story when those numbers were released. People decried the unaffordability of the market, but when you think about it, it’s actually a huge surprise that it didn’t drop more! Despite the huge price increases, like those we’ve see in the big cities where most people live, the drop-in home ownership was only 5%? Why? I believe it’s because as a culture, we’ve bought-in to the idea of ownership.
It’s hard to find data on this, but anecdotally, you may have heard of some young people having their parents cover part or all of the down payment to get in on the real estate game. I wonder how many baby boomers had their parents pay their down payment? That, to me, is a huge break from the “back in my day” mentality. That’s how important it is for families for their children’s own.
But not everyone is so fortunate to have parents wealthy enough to do them a favor worth tens or hundreds of thousands of dollars. This kind of massive wealth transfer is only exacerbating wealth inequality by keeping real estate equity growth for the children of the already wealthy. But there are always limits to growth. Eventually, without some major price correction, the down payments will surpass what wealthier parents are able (or willing) to pay.
Why some millennials aren’t buying it
While the cultural obsession with ownership remains strong in many millennials, according to a Harris survey, the cohort is generally more geared toward living a good life than the accumulation of wealth, writing: “For this group, happiness isn’t as focused on possessions or career status. Living a meaningful, happy life is about creating, sharing and capturing memories earned through experiences that span the spectrum of life’s opportunities.”
Bottom line: Don’t align your life around your home buying goals, align your home buying goals around your life.
Lifestyle is extremely important. You may own a home but if you can’t afford to do what you love, or you are so far from where you want to be, then you’re going to be unhappy when you go home at night.
I was recently out showing rentals to some clients and ran into another client we helped a few months ago. He, like many males in their 20’s-30’s – is single and rents in downtown Toronto. He also happens to be wealthy and successful. Someone who can easily afford to buy if he wanted. He works, he goes out at night, he travels, he drives a nice car and he enjoys his life. The difference? He rents a condo in downtown Toronto. Why? To paraphrase what he told me: I can spend $4000 a month on homeownership or I can spend $2500 on a really nice condo, then save or spend the rest on myself. He’s choosing to prioritize his life over a mortgage.
So, if you work downtown but can only afford a house in the suburbs, how much money is having to spend ten to fifteen hours a week stuck in traffic on your commute worth to you?
If someone you know is stretching themselves too thin to afford mortgage payments on their new home, is it really appropriate to say, “congratulations on your new home”? That mortgage could end up being a pain point in their life for decades. Maybe a card saying, “congratulations on your debt” is a better way to look at it?
If you buy a place but you absolutely hate where you live, is the extra, let’s say, $50,000 you get when you sell worth it? Maybe – just maybe – you shouldn’t have bought it in the first place?
So live where it makes you happiest. If that means renting, there’s no shame in that! And this is coming from a guy who sells people’s homes for a living!
I’m not saying, never buy a home. If you want it and you have the means, great! I can help you find what you are looking for. But if you just want to rent, and save up for later or something else, that’s equally good. If you want to rent and never own, all the power to you, and if you are part of the few that rent because it’s a business perk or expense, well you keep doing what you are doing my friend! And, hey guess what, I can also help with that too. Not many people know this, but you can use agents to help you find rental units. Ask about how we can help you find a place to rent that you’ll love.
What’s important is that you live where you can be happiest. Your life is finite. Money can grow, time can’t. In a trade-off between loving where you live with less money and hating where you live with more money, the quality of your life should win every time.