Thursday, July 14, 2016

Home-Buying Dreams

I’ve written several times about the benefits of renting in Canada’s high-priced housing market (see here, here, and here). What I hear back from many young people is some version of the following:

But owning a home is one of my dreams. I want to have children and raise them in a house, not some apartment.

This is quite understandable. I bought my current home to suit my children’s needs. We’re near a school and have a nice big yard they played in when they were younger. I can certainly understand why my sons and their peers want the same thing for themselves and their own families.

Unfortunately, today’s house prices are much higher relative to incomes than they were when I was starting out. For many young people today, stretching to buy the house of their dreams is a bad idea financially.

Does this mean the dream of owning a house is dead? Absolutely not. The path may be different from what it was for me and possibly more difficult, but there is still a way.

The first thing to realize is that Rome wasn’t built in a day. Most of my peers rented apartments for a few years before they bought a home. My own path involved renting apartments, then renting a row house before I bought my first house.

The key while in the renting phase is to save money. Owning a home comes with property taxes and significant upkeep and repair costs. Renters should be able to build savings while they rent.

Another thing to realize is that renting doesn’t necessarily mean living in an apartment. While it makes sense to start out with cheaper rents, it’s certainly possible to rent row houses or even a detached home once your income can support the rental cost.

If housing prices remain high for some time, millennials my end up renting longer than my peer group did, but that could change. For anyone who rents and builds savings, a housing crash could be the perfect opportunity to jump into home ownership. But you have to be saving a down payment to be able to take advantage of lower house prices.

There is nothing wrong with building a career and savings while renting progressively nicer places to live. You might even choose to rent a nice place to raise children. There is no need to put off having a family because you want to own a home first. The important barriers are income and savings, not home ownership. At some point while building a good life based on renting, you may benefit from a housing crash and jump into buying a home.

It’s hard to imagine how housing prices can keep climbing as fast as they have been. Who could afford to buy homes at double today’s prices? I know that sounds dangerously close to making a prediction, but we’ve had many cases of house prices dropping in the past, and there is no reason to believe it won’t happen in the future.


  1. I've said it many times, the dream of homeownership is one of longest running, and perhaps most successful modern marketing schemes.

    It began with an American real estate developer selling newly built suburbs to soldiers returning from WWII; it's been nothing but gangbusters since then. Prior to that, house prices were much, much more relative to income, perhaps because residential real estate had yet to be "monetized" -- a house was a utility, not a financial instrument. More importantly, perhaps, was the fact that there was no social stigma to renting (and raising a family in a rented abode). It's was what almost everyone did, here in North America and abroad.

    Big forces -- banks, municipal and provincial governments, mortgage brokers, builders, resource industries, etc. -- do not want the housing dream to end, even going so far as trying to turn a nightmare into a dream. The reliance on emotion is high and heavy.

    Remove Vancouver and Toronto from the picture and (I think) the average Canadian house price is somewhere around $300,000 (~4x gross family income; adjust for income across geography). Those living in "bubble" environments, even with a 50% price crash, won't even be able to afford a house (@$500,000); it'll be an environment like the US where those with money scooped up even more ownership (i.e. the rich get richer).

    Point being, people should attach a good heft of logic to their dream.

    1. @SST: I don't think we can do much to dampen the dream living in a nice home. What concerns me more is the feeling that owning is so much better than renting the same house, and the feeling that you have to jump in now before prices get further out of reach.