Opening the economy is going to be very educational for recent first-time home buyers.
The pandemic was the worst thing ever to happen to Canada’s housing market if you’re a buyer. But let’s not ignore one small benefit for the first-time buyers who got into the real estate market during the past 17 months and had to deal with soaring prices and blind bidding. Pandemic lockdowns have given these buyers a chance to ease into the cost of home ownership, almost like how professional athletes prepare for the season at training camp.
Now, training camp is ending. The economy is gradually reopening as we slowly get the upper hand on COVID-19, and that means a shift back to more normal spending from the reduced cash outlays of the lockdown period.
Recent home buyers, start preparing now for the heavier spending days ahead. Do not get sucked into the vortex without a plan to manage your expenses.
The widely anticipated post-COVID discretionary spending binge is variously being branded as the Roaring 20s; revenge spending; YOLO, for you only live once; and MUFLT, for make up for lost time. A recent personal finance column warned of the risks of getting carried away with this spending in ways that increase debt. The smart splurge is one you can pay for out of savings.
But returning to a more normal life will also exert more subtle financial pressures. Even without big trips and other purchases, you’re going to be spending more.
A return to a more normal life means a resumption of non-discretionary costs such as daycare and transportation. Have you noticed the price of gas lately? The website GasBuddy shows the average price per litre across the country has gone from roughly $1.10 in early 2020, before the pandemic hit hard, to about $1.35 lately.
If you’ve been getting a car insurance discount for minimal driving in the pandemic, you’ll want to let your insurer know if you’re getting back to normal mileage. Costs will rise.
Clothing is an example of spending that sits on the borderline of discretionary and mandatory. Your work and formal attire has been on ice for 15 months – is it ready to wear, or will you need to do some updating or refreshing to be presentable at the office or events such as weddings?
A recent COVID Spending Tracker from RBC Economics featured the headline “Canadians Continue to Delay Clothing Spending Plans,” with a chart showing how spring lockdowns kept 2021 clothing spending well below prepandemic levels.
A resumption of socializing will also change your spending. If you meet friends at a patio for drinks, expect to pay double or triple the cost of buying booze and drinking at home. Takeout meals have soared in price, but they’re still below the cost of a restaurant bill that includes alcohol and tip.
Stores and malls that are reopening will reintroduce you to the pull of impulse shopping. Surfing Amazon and other websites lacks the tactile rush and immediate gratification of seeing something you like and then holding it in your hands.
Fight the power of retail with a household “return to normal spending plan.” Make a list of expenses that will arise or resume in a more normal world and strategize on how to absorb them.
You might find some savings in pandemic expenses that will no longer be required. How many subscriptions to online streaming services did you acquire in the past year or so, and how many will you need if there’s more to do than watch TV? There may also be some room to cut some of the fat out of grocery bills if food and cooking lose some of their importance as an emotional support.
One of the financial realities of the return to normalcy is that there will be less money to save. Canadians lucky enough to keep their income intact through the pandemic were able to park roughly $200-billion in savings in the past year as a result of being stuck at home and not out in the world.
Economists speculate that the amount of money saved on each paycheque will decline slowly because of lingering concerns about the economy. But recent home buyers may find that a move to normal spending leaves them little or nothing to save.
Such is life when you buy a house in today’s real estate market. The actuary and author Fred Vettese has an upcoming book on how young homeowners can juggle mortgage, daycare and retirement savings. Stay tuned.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, June 29, 2021