Young Adults Still Hope to Buy a House Despite Prices

It really is harder to buy a house now than it was for your parents and grandparents, but young people aren’t giving up.

Although housing prices are high, more than 85 per cent of the millennial generation, born between 1980 and 2000, believe that owning a home makes more sense than renting, money-wise.

According to a recently released paper co-written by a University of Illinois expert in housing and finance, millennials still face major hurdles towards homeownership.

That fact is no different in British Columbia.

Julien Picault, economics instructor at UBCO, said the current generation of millennials has the same kind of hope for buying a house as other generations did in the past, but it’s just more difficult.

“Prices of housing have just gone crazy…we see that in B.C. especially,” he said.

Over the years, housing prices have gone up quicker than incomes have.

“Now, our wages are disconnected with the housing market,” said Picault.

How many times have you heard of someone getting a 20 per cent wage increase? Probably not very often, but Picault explained it’s much more common for a house to increase in value that much, sometimes within a year.

While the up-front price of a house is greater nowadays, it may still be a good investment. As Picault explained, it provides financial security later in life, not having to pay for accommodations.

“And I think more than the financial sense, there is the idea of having a home. For people to have a place to call home is very important, not that it always makes (financial) sense, and it’s hard to say because we don’t know where the market will go,” said Picault. “If the market keeps going this way, people will have an asset that will see value going up quite a bit, and quicker than other types of markets.”

With recent housing booms in cities across Canada, people are investing in housing to make money, whether or not they actually live in or rent the house.

“Will that increase be sustainable over time? It’s hard to say,” said Picault.

One thing is for certain, it’s harder now to buy a house than when the baby boomers were in the market.

Picault said part of this is because you need a large down payment, and from then on a significant amount of income has to go to mortgage.

“That isn’t always easy for young families who are just trying to establish their life. The financial burden that comes with buying a house is huge,” said Picault.

Right now, the Canadian dollar is going down and prices of daily expenses—like food and other imported products—are going up.

“We need more of a significant share of our income in order to pay for that,” he said.

Increases in terms of wages aren’t fast, but daily costs are, and so are mortgages.

One current positive is low mortgage rates helping families to buy houses now, although Picault said he’s unsure how long that will last.

“The Bank of Canada doesn’t have a plan to increase the rates right now, but that might change quickly.”

Still, the rates don’t compensate for the difference of costs and wages.

Other types of credit—student loans, car loans, and investments—all add up as well.

“The difference with other generations is we have to borrow way more money. But we have the capacity to borrow more than our parents had, just because the interest rate is lower as well.”

More and more people are going to university, leaving a greater amount of student loans.

In fact, most people owe an average of $20,000-$100,000 in student loans, according to Picault.

Still, he said it pays off. Someone with a bachelor degree makes about $1,000,000 more in their life than someone without higher education.

Education also effects buying a house in other ways.

People tend to put off marriage, children, and homeownership until after they enter the job market.

In the past, most people started working by age 20, but now, university students are usually 22 or 23-years-old before they finish and if they have a masters or higher, it takes even longer.

“That delays their introduction into the labour market,” said Picault. “Usually people want to establish their life first, make sure they have the proper income, and then they will make the decision to buy a house, have kids, etcetera.

“All of those are linked with the fact that people spend more time on education before going on to the labour market.”