Our homes are going to be even more central to our lives in the next decade.
You’ll find a lot of millennials and members of Gen Z watching this trend from their vantage point in Frustration City. Thanks to the pandemic, young adults are going to be set back by years as first-time home buyers. Call it a repeat performance of what transpired after the 2008-09 recession – lower wage growth and stalled advancement for young workers.
We’re all clinging to what’s meaningful in the pandemic, with houses high on the list. Home sales and prices are surging as part of a rethinking of our living arrangements. Two key themes are bigger and farther, as in more emphasis on detached homes over condos and on suburban instead of urban locations.
In a report produced for businesses, consulting firm Accenture says COVID-19 is likely to bring us a “decade of the home.” Yes, I know. What were the past 10 years in personal finance if not the decade of the home?
Accenture surveyed more than 8,800 people in 20 countries and found homes will take on importance as a result of limitations on our lives imposed by the pandemic. We’ve already settled into a lifestyle of socializing at home, working at home and doing a significant amount of our shopping near home. This focus on our local community will be long-term.
Young adults were already fully indoctrinated into the religion of home ownership before the pandemic hit. Now, the drive to own a property is set to get more intense – and frustrating.
It’s becoming more obvious by the day that the pandemic has financially slammed a segment of the population while leaving a lot of people either unaffected or better off. Prominent among the hard-hit cohort are millennials and members of Gen Z, which is to say people in their 20s and 30s.
People under 35 accounted for about half of jobs lost in the first phase of the pandemic, Josh Nye of RBC Economics noted in a recent report. While we’ve seen a recovery, employment for this group is still down by roughly 250,000 jobs from prepandemic levels.
Government programs such as the Canada Emergency Response Benefit have supported people who lost jobs or income as a result of the pandemic, and a new Canada Recovery Benefit and changes to Employment Insurance will help going forward. “But it’s difficult to accumulate wealth and build up money for a down payment when you’re relying on government benefits,” Mr. Nye said.
Millennials have seen this movie before. RBC has looked at how people graduating from postsecondary programs in 2008-09 did in the work force and found this group was behind cohorts that finished school before the recession.
“That could very well be the case again during the current recession,” Mr. Nye said. “We have hiring freezes at some large employers, and general uncertainty might limit job opportunities for Canadians who are graduating now.”
Remote work might also work against young workers, he added. They’ll be less visible to their managers, and that could mean fewer promotions.
The struggles of millennials to buy homes will be felt in the broader residential real estate market. Mr. Nye said that in combination with reduced immigration flows, few young adult buyers could cause demand for homes to slow in 2021.
Low interest rates definitely help young buyers, and so will the fact that condo prices aren’t keeping up with house prices. But detached house prices are soaring – the average resale price in Toronto was up 20 per cent year-over-year in August, while Vancouver prices rose 5.3 per cent.
Aspiring first-time home buyers, you need to stay patient to get into the housing market in big cities with high prices. A few points of encouragement:
- Rents are becoming more affordable in the pandemic, which opens room to save for a down payment;
- The housing market can’t sustain this kind of upward price momentum for long – expect a period where momentum fades;
- The Bank of Canada has signalled that low rates will be with us for a while;
- Rising lifespans make it feasible to push back milestones like home buying to your late 30s or early 40s, though retirement will have to come later as well;
- There are many medium-sized and smaller cities with affordable prices.
The idea of the decade of the home has a, well, homey feel to it. It’s just the thing to ease the stresses of the pandemic, other than the fact that young adults are being shut out.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, September 17, 2020