Gen Z has had it rough when it comes to the dream of homeownership. Between the run-up in prices over the past few years, alongside the rapid rise in interest rates, most young Canadians are feeling pretty hopeless about homeownership right now… especially Gen Z. But is homeownership completely out of the question for them? I think there’s hope. Here’s why you should never say never.
The First Home Savings Account (FHSA) is your new best friend.
If you live in Canada, you’re about to get the most powerful tool we’ve ever had when it comes to saving for your first home. The First Home Savings Account works like an RRSP as you put money in (you get a tax deduction), and it functions like a TFSA on the way out (no tax on the withdrawals or investment gains). You can put in up to $8,000 a year, and up to $40,000 lifetime, which means a big leg up on your journey toward homeownership.
Currently slated to launch in April of this year, everyone who aspires to own their first home should be opening one of these. Just remember: just because it has the word “savings” in its name, that doesn’t mean you have to leave your money in cash within the account. You can invest it all of the same things – stocks, bonds, index funds, and so on – as with your RRSP and TFSA. Don’t let anyone tell you otherwise!
Interest rates won’t stay this high forever.
Right now, the Bank of Canada has increased interest rates to the point that they have a stifling effect on the Canadian economy. This is by design, and it’s meant to bring inflation figures, which are currently way above the target range of 1-3% per year, back down to acceptable levels. Once that happens, we should see a bit of a reversal in the direction interest rates travel; they should begin to decrease again once inflation stabilizes.
Will we ever get to enjoy 5-year fixed term interest rates below 2% again? Who knows. One thing is for sure though: interest rates won’t stay where they are now forever. While that’s probably cold comfort for Gen Z, it’s not nothing; current interest rates, and the mortgage stress test rules that accompany them, are a big part of why homeownership is currently a pipe dream for young Canadians.
Prices can’t keep rising the way they did.
Gen Z hasn’t yet lived through a full real estate market cycle, which often takes many years to come full circle. When all you’ve known is an environment off bidding wars and prices rising into the stratosphere, it’s tempting to throw in the towel and buy into the hype that it will be this way forever.
That’s not the case though; it can’t be. The market can only support prices to a certain point, at which point there won’t be enough demand to sustain them. Said another way, a seller’s market doesn’t stay that way forever. We’re already seeing this trend reverse, with home prices already down 10-20% from their pandemic highs.
Sooner or later, the bubble bursts, and the roles reverse. When that happens, Gen Z will have a better chance of getting into the homeownership ladder than they have up to now.
Don’t underestimate your wage growth potential.
This is a small thing, but I feel like it’s worth mentioning here. If you’re young in your career, chances are high that your earning potential is the lowest it will ever be in your working life. You’ve got nowhere to go but up, and as you become more senior and experienced, you can command a higher salary as well.
What seems unattainable at your current income level can start to feel more realistic as your income increases, especially when you combine this with some of the other trends mentioned in this post.
You don’t need all the bells and whistles on day 1.
I’ve noticed a trend among some younger Canadians, where they want their forever home as their first home. I know this isn’t everybody, for sure; but it’s definitely some folks. To those individuals, I’d suggest you ask your grandparents what sort of home they purchased for their first property.
When we talk about housing affordability, we often crack jokes about “the good old days,” where the husband went right into working life out of high school, and on his income alone was able to support a family of six. I’ve laughed along with everyone else at the contrast.
But one thing sticks out in my mind: what type of home were young families living in at that time?
Thinking of my grandparents and the grandparents of friends, I can tell you that it wasn’t a 2,000-square-foot 2-story home with granite kitchen counters, a walk-in closet and an ensuite bathroom. Nope, it was a matter of trying to raise four kids in a cramped, 800-square-foot, 2-plus-1 bedroom house on a small lot.
Now I’m not saying that it’s unacceptable to want nice things, or to aspire to a home you can feel great about coming home to. It’s human nature to want that. But you don’t have to start there. There’s no shame in starting with the small condo that isn’t right in the heart of downtown. Or the fixer-upper that needs a lot of hands-on work upfront.
Not only will places like that be more affordable, they help build character, and make the moment where you finally do buy that dream home (and you will!) that much sweeter, because you have something to contrast it with.
Wrapping it Up
In times like this, facing multiple headwinds, it can be tempting to give in to despair, throw your hands up and say to yourself “I give up; I’m never going to own a home.” With a combination of diligent saving, a lot of patience, and the right mindset though, you can make that dream a reality. Hang in there, because your moment will come!
