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rob carrick

Gen Y's fear of missing out on home ownership is right on the money.

Month by month, affordability in the country's hot markets is slipping away. Every year a first-time buyer waits could end up costing many thousands of dollars as higher prices flow through to bigger mortgage payments.

The average price of a home in Toronto increased to $688,181 at the end of March from $613,933 a year earlier, data from the Canadian Real Estate Association shows. That's enough to increase the payments on a five-year mortgage at 2.59 per cent by $310 per month, or $18,600 in total over five years. In Vancouver, price increases over the same timespan result in extra mortgage costs of $616 per month and $36,960 over five years (assuming a 10 per cent down payment).

A recent survey from Toronto-Dominion Bank found that 19 per cent of Toronto and Vancouver home owners mentioned a fear of missing out – FOMO, as it's known on social media – as a top consideration in buying their first home. FOMO is a totally understandable emotion in our housing-obsessed society, and it's justified by the fundamentals in the hottest markets. Guaranteed, we're going to see more FOMO home buying. By necessity, a lot of it will only happen with parental financial help.

Let's understand what we're getting into here. Almost everyone who ever bought a home thought he or she was making a leap into the unknown. But today's millennial FOMO buyers are taking on unprecedented levels of risk.

They will have to devote a high proportion of their household earnings to housing costs compared to previous generations, while bearing extra responsibility to save for retirement. Compared to the baby boom generations, fewer millennials will work in jobs with company pensions.

Today's first-time buyers must also adjust to a slow-growth economy and its impact on the steady year-by-year increase in prosperity we've come to expect. It's best to plan for economic serendipity – bonuses, raises, promotions – to be a rarer occurrence than in previous eras.

A weak economy is keeping interest rates low, and that should continue for a while yet. But if you buy a house today with a 25-year amortization, you have to be prepared for at least modestly higher borrowing costs along the way. People who bought in the 1980s and early 1990s had to contend with shockingly high interest rates, but they got to renew at steadily lower rates over time. The only way we will get lower rates than we have today is if the economy implodes.

Something we'll call "location risk" must also be considered by FOMO buyers. Houses in suburbia and beyond offer more affordable mortgage payments, but also grinding and expensive commutes that can degrade your quality of life. Other FOMO risks present themselves in the buying process – getting caught up in bidding wars that can only be won with expensive bully offers and waiving sensible conditions in purchase offers like a home inspection. If you're stretching your finances to the limit in buying, you need every advantage possible in knowing your house's weak spots.

Emotionally, there's an additional risk in the form of a possible correction in house prices. If you buy a house today and commit to staying 10-plus years, price declines in the next few years likely won't mean much in the long run. But in the near term, things could get stressful at home if your FOMO purchase is followed by a market decline.

FOMO buying is a high-risk proposition, but you can't deny the logic. While some housing markets across the country remain affordable, Toronto, Vancouver and nearby cities are running away from first-time buyers. Few people will discuss this by-product of hot housing. Too many still operate on the idea that buying a first house is always a stretch, but nothing insurmountable if you save diligently and buy sensibly.

The FOMO narrative undersells the damage done by hot markets. Young people aren't missing out – they're being incrementally squeezed out by price increases that make mortgages more expensive to carry. Unless millennials work in lucrative jobs or have parents who do, ownership is a struggle some won't win without compromises like living far from work or sharing a house with friends or family.

Those who do get into the housing market today could be the most precarious generation of buyers ever. All the easy money's been made in housing, while the risks of owning multiply.