The math of home ownership simply doesn’t work for some young people.
Let’s understand something about the housing market and the economy. Incomes, particularly for people trying to get into the workforce or establish their careers, are not rising anywhere near fast enough to keep up with housing prices. As a result, we are heading toward a generational split in housing affordability. If you’re already in the market, you’re good. If you’re young and just starting out, you might well question the financial commitment required.
Some see a home as not only a giant debt, but also a disruption of a lifestyle where one can achieve a good balance of saving and spending.
While living debt-free, one can manage to save or and take trips. Renters can often not live extravagantly or beyond their means. No debt allows renters to save.
Standard guidance for someone with money in the bank would be to put that money toward a home down payment. This would be based on the usual reasoning about homes being an investment, a forced savings plan and a much better use of money than paying rent.
All of this was true five years ago, when houses were more affordable. Now, it’s time to stop foisting this advice on young people. Some are better off renting.
Even when a renter would qualify for a mortgage, if they went ahead and bought, they would be giving up both financial flexibility and mobility. In a tight job market, being able to relocate to another city without the hassle of selling a house is a huge advantage.
So what should renters do with saved money? Invest the money conservatively in a tax-free savings account and review things five years from now.
Why five years? That’s a good span of time for someone to assess where they are in their life. If income has soared, or if marriage happens, one may be able to carry a mortgage comfortably. Having kids may also influence the thinking.
One may also decide that the renter’s life suits them fine. By investing and adding to it regularly, one will be building wealth in a similar way to the homeowner who gradually pays off a mortgage.
Don’t pity the young adults who can’t or won’t be able to afford a house. Fact is they may be the most rational players in our never-say-die housing market right now.
Globe and Mail