(April 29, 2016
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.In Vancouver, price increases over the same time span result in extra mortgage costs of $616 per month and $36,960 over five years (assuming a 10 per cent down payment).19 per cent of 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.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.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.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.