How to make your dream of owning a home a reality in 2022
It may be possible if you're willing to be creative, experts say
By: Amy Legate-Wolfe, Special to Financial Post
It’s never been harder to buy a home and that’s especially true for millennials.
This generation was born in a recession, tried to enter the job market during a financial crisis, and is now trying to settle down and own a home during an economic crisis and pandemic.
Don’t fool yourself. The pandemic has certainly made things worse for this group of 25-to-34-year-olds. Housing affordability in Canada continues to worsen, with homeownership now taking up 46.5 per cent of the average household’s income, according to the National Bank of Canada.
“Prices in some places have increased year over year 30 per cent and sometimes 40 per cent,” he said. “We have not seen the kind of wage increases that would match the rise in home prices pretty much across the board in Canada.”
The median household income for Canadians remains around $62,000, according to Statistics Canada as of 2019. However, the average household spends about $68,000. That makes it seem all but impossible to own a home given the high cost of carrying a mortgage, plus all the other household bills.
"It's like flailing in the wind"
JAMES MCCREATH
But it may be possible if you’re willing to be creative, said James McCreath, a portfolio manager and senior investment adviser at BMO Private Wealth.
“The first step is preparing a household budget and that gets you the framework for what you can afford, and to scrutinize your monthly inflows and outflows,” he said. “You can then start building up that down payment nest egg … that’s not easy unless you have a budget. It’s like flailing in the wind.”
From there, McCreath said there are new ways young people can start putting cash towards a down payment. For example, side hustles have become increasingly popular, with some people renting out parking spaces and storage units, and others finding a paying passion project.
“People are really open to these side jobs,” he said. “Write down a list of your strengths and where you’re interested and I think there are unlimited possibilities there.”
But not everyone has the time or energy after work to start up an extra gig. There are also tax implications once you open up a small business. Instead, Hogue recommends considering today’s work-from-home economy as an opportunity.
“Because of work from home, it allows some Canadians to think of other cities or markets to achieve their homeownership dreams,” he said. “Employers are much more flexible. Time will tell if that’s a permanent avenue to become a homeowner, especially in markets that are very expensive.”
"You drive until you qualify"
ROBERT HOGUE
But even though major markets continue to be expensive, millennials and younger people continue to flock to them. As of 2018, about 88 per cent of millennials lived and worked in metropolitan areas, according to Pew Research. This has pushed homeownership to the back burner, and increased rental costs.
Housing supplies remain at near historical lows across nearly every market, according to a research report by Hogue, and the pandemic has only made it harder to get in on the housing market. He expects this to continue in 2022…
With that in mind, Hogue recommends that it may be time to reconsider your options if homeownership is your dream. If you want a downtown Toronto home with a backyard, you may want to consider a townhouse or semi-detached home instead. Or, you could keep driving until you find a market you can afford.
“You drive until you qualify,” he said. “It will involve longer distances than in the past. And some will have to settle for condominium apartments.”
If you absolutely need a house, one way to help with the down payment is to use savings already available to you. If you’re a Canadian who has been adding to their Registered Retirement Savings Plan (RRSP), you can use up to $35,000 as a first-time homebuyer through the Home Buyers’ Plan. You then have 15 years to pay it back, tax free.
This repayment plan would also help with another area where millennials struggle: credit. Living at home for longer than previous generations mean there is less proof you’ll pay your bills.
“Young people may have car payments, student debt, all compliant with borrowing terms to build up credit,” Hogue said. “Like any form of credit you have, credit cards and lines of credit, for example, you have to stay up to date on your payments. Pay it off in an orderly fashion and that will convey to lenders that you can be counted on.”
Of course, you may still fall short even once you’ve created a budget, built up credit, used available savings and put cash aside each month. That’s when Hogue and McCreath say it might be time to visit the bank of mom and dad.
“If you come to them and say, ‘I’ve put together a budget, I have a plan, and I’m committed to this and put aside this amount of savings,’ that just shows you’re very well prepared and the conversation will go a lot easier when asking for money,” he said.
If you still don’t have enough even after going through this exercise, choosing to rent over owning a home is certainly not a failure. Many need to stay downtown for jobs or they simply enjoy the urban lifestyle. If that’s the case, staying put is certainly an option.
“There’s a cultural component to homeownership, which is very strong in North America. But if you look around the world, there’s not as strong a move towards homeownership,” Hogue said. “There might be some cultural evolution towards rental … and that’s not necessarily some kind of failure.”
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