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rob carrick

Pity the first-time buyer in today's housing market.

Wait, that's a bad idea. Giving someone your pity implies they are suffering and need a helping hand, which is not the case for young adults who can't afford to buy a house. It's an economic fact that Generation Y is being priced out of the housing market, but let's be careful in what we do about it.

We put so much significance on young people buying homes. It's how they join our tribe, so to speak. Owning a house means you're buying into widely shared ideas of family, stability and consumerism. When young people buy homes, they validate the choices made by those who came before, and show they're ready to take their place in society.

You can see the importance society puts on home ownership in the targeted help provided to first-time buyers. Examples are the Registered Home Ownership Plan and successors such as the Home Buyers' Plan and the First-Time Home Buyers' Tax Credit. Recently, the group representing mortgage brokers lobbied the government to provide additional help for first-time buyers.

Measures for first-timers are as much about the needs of the real estate industry as those of buyers. We could better help young people buy houses by ensuring they have the education, training and career opportunities needed to generate the income required for home ownership. Failing that, we need to understand and be okay with young people choosing to stay out of the housing market. Respect the renter.

Members of Gen Y (born 1981-1999) see three big obstacles to buying a home today, Toronto-Dominion Bank research shows.

  1. Saving a large enough down payment: Putting 5 per cent down on a house costing the national average $378,532 requires savings of $18,927 plus an additional amount of up to $15,000 or so to cover closing costs; also, it’s tough to save at a time when rates on savings accounts top out below 2 per cent.
  2. Prices: The Canadian Real Estate Association’s house price index rose in March by the smallest amount in more than two years, but it was still up 2.2 per cent year over year.
  3. Insufficient salaries: House price gains have far exceeded wage growth, and there are also issues with unemployment and underemployment.

One further challenge for first-time buyers is the reduction last summer in the maximum mortgage repayment period to 25 years from 30 for people with a down payment of less than 20 per cent. The shorter the amortization period on a mortgage, the higher the payments are.

TD has produced a table, reproduced below, showing how much money someone would have to save weekly over five years to afford a 10-per-cent down payment on the average-price house in major Canadian cities. The required amounts ranged from a high of $281 in Vancouver to $98 in Winnipeg.

Self-discipline isn't the only thing required to meet these savings goals. You also need a reliable paycheque, not the part-time or contract work so many young adults have. Student debt is another complication: TD's research suggests that 23 per cent of the Gen Y contingent is still repaying loans taken out to afford college or university.

The most recent data from Statistics Canada shows that about 70 per cent of Canadians own a home, and that the rate of home ownership has been rising for years. Gen Y isn't positioned to keep the momentum going, and that's going to worry parents, politicians and people in the housing industry.

Get over it, everyone.

For one thing, Gen Y may simply end up buying later in life. If you figure on living to 90 and are willing to work past 65, what's the harm in buying a house in your late 30s and targeting age 60 for mortgage freedom?

Condo living is another possibility for Gen Y, and so is permanent renting as long as it's accompanied by aggressive saving and investing. That way, a renter builds the same kind of financial base as home owners gradually paying off their mortgage.

Tax-free savings accounts are ideal for renters to use for their investing because they permit the same tax-free gains you get when selling your house (provided it's your principal residence).

Gen Y, bide your time. Rent as long as you need to build up your down payment, and don't buy until you can afford the full range of home ownership costs (more on that next week). Saving longer makes you stronger.

How Much Do I Need To Save

Toronto-Dominion Bank produced this data on how much you'd need to save weekly over a five-year period for a 10-per-cent house down payment in various cities:



2012 Price

10% DP

Weekly Savings

Required Over

Five Years

































For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (robcarrickfinance).

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