Home ownership for millennials – are they dreaming?
Every day for the past few months, I’ve been reading the business sections of Canadian newspapers. And every couple of days, there is a new article about how unaffordable houses are, particularly for young Canadians.
It’s pretty depressing stuff. Enough to make me wonder – will most young Canadians ever be able to afford to buy a home?
Note – these comments really only apply to Vancouver, Toronto and in some cases Montreal, Kelowna and Calgary. Just about everywhere else millennials should have no problem buying a house or other kind of home provided they have steady employment.)
Can millennials expect to ever own a home in a big city? A qualified yes, it is possible. What people are doing of course, most obviously in Toronto and Vancouver is buying condos.
It’s a question of expectations. If you want the 3000 square foot detached house, the cost go up dramatically. Even what used to be considered starter homes; small 100sqft bungalows are selling for $600,000 or in a practical sense, a $120,000 down payment if you don’t want CMHC.
Other than a condo, there are options. If you have two kids, for example, a condo downtown may not work for a variety of reasons.
One growing trend we see making larger houses more affordable is the inclusion of basement units and other rental units, within the home. You’re no longer just a homeowner, you’re also a landlord on that property, and as such, rental income could help with your mortgage.
So how then, with the average professional wage of $47,200 (payscale.com) and a $96,000 (BCCPA) for CPA’s, lawyers and other such designations can you save $120,000? In short, you can’t. So instead you need to focus on the 250K condo and work on building equity. This still requires $50,000 down, so expect to go out less and do less… until you can build up more.
The math is simple and sad. $47,200 after taxes is approximately $36,360. Then subtract average car payments, gas and food and you are down to $26,160 (not including rent) or 21% of what you need for a down payment. This means it would take 5 years while doing nothing extra at all.
At $96,000 salary it looks a little bit better, you are down to just a bit over two years to save for the down payment.
$50,000 down payment on a condo is a lot more reasonable. Not great but it is possible. Its a question of priorities. If you go out for dinner often, add more time. If you smoke, add more time. If you buy lots of clothes, add more time... you get it; The more spending you do above essentials; the more time it takes to save.