Over the last year, one topic has dominated the conversation in Vancouver, real estate. The dramatic price increase has priced many Vancouverite’s out of the market. Organizations such as the Bank of Canada, CMHC, and OSFI are raising concerns about Vancouver and Toronto’s housing market. Perhaps the biggest confirmation for concern was done by the British Columbia government with its new foreign buyer tax. A tax that blindsided everyone with a 15% tax on foreign buyers who purchase real estate in some parts of the province. It was 360 degree turn around by a government who spent the last year telling the public the housing market was both stable and operating as normal.
And while it might be tempting to view the housing problem as only a Vancouver or Toronto issue. Any housing correction or possible crash in these markets will impact homeowners all across Canada. Therefore, this isn’t just a Vancouver or Toronto problem but rather a Canadian problem.
It begs the question: how did we get ourselves into such a position with respect to housing? When did we lose sight of the true meaning and purpose of owning a home? The recent shift in how we view homeownership and our expectations from our homes is completely changing how we think about real estate. We’ve moved from purchasing a home to solely buying an investment that we happen to live in.
Millennials and everyone else is feeling the pressure…
There’s a common theme I find when I have conversations with my friends. They all want to be successful and feel a conscience or unconscious pressure to become successful. I also see an increasing gap between my friends who are doing well and those we are struggling. As a result, there is greater inequity among my friends.
I also find it interesting how millennials are viewed as the most entitled generation yet among my friends I don’t really see that. When I talk with my friends they simply want the same basic things their parents were able to have and provide for them. Things such as a good job, a family, good friends, good community, and the ability to care for their family if they chose to have one. Most of my friends want the basics in life. What frustrates them and I is obtaining the basics in life is becoming increasingly difficult.
And perhaps the most difficult of those basic needs is home ownership. Buying a home is a huge accomplishment and many millennials or anyone for that matter feels it’s an important milestone to becoming an adult. The problem is home ownership is becoming more difficult for millennials to acquire on their own. TV stations such as HGTV or DIY Network offer an endless stream of housing shows and home improvement projects that constantly add to the pressure of getting a home, while falsely portraying home ownership as always a great investment. As my friends see huge mortgage’s as the only means towards homeownership they are forced to view their newly acquired home as an investment to justify the cost. In short, most of them end up buying an investment rather than buying a home.
Keep the focus on buying a home and you will not care if it goes up or down
A shelter is a basic human need but when you purchase a home you’re also making an investment decision in addition to fulfilling a basic need. The trick is to ensure you stay focus on your primary need, which is shelter. Good investment decisions are made based on factual information available while limiting emotional impulses. Buying a home is 80% emotional and 20% driven by factual information. Therefore, it’s simply not possible for most of us to purchase a home based on its investment value alone since most of our decisions are based on our emotional feel about a house.
Real estate investing is different than buying a home. If you choose to invest in a property, the way you view and assess the property is completely different than how you view and assess a home you want to live in or raise a family in. And since most of us are more likely to purchase a home more for its emotional triggers, it’s best not to pretend to yourself you’re making a solid investment decision. There is always an exception to every rule and I’m aware some people buy a home while also making a good investment. However, we all believe we are the exception to every rule. To avoid the investment trap, buy a home for you and your family to live in while creating wonderful memories. Do not overextend yourself in the name of a good investment.
My wife and I followed kept this in mind when purchasing our first home. We kept the focus on practical and basic things we needed. We did not max out our purchase price because of a view or some fancy kitchen. We were happy to have those things but not over our established budget. If we couldn’t find what we wanted, we were prepared to just keep renting and wait till something came up in the future. We understood home prices will go up and go down and ultimately the price increase and decrease mean nothing unless you’re looking to sell or buy.
Since we bought a home and not an investment, we’re less concerned about the daily ups and downs of real estate market. We did not overextend ourselves by convincing ourselves that it will be a great future investment because the truth is we don’t know what the future holds. And since we cannot see the future we did the following things; bought the house at fair market value at the time, stayed within our budget, did not tell our realtor our max mortgage approval, and ensured we still were able to put money away for savings each month. We had no interest in being house poor in the name of becoming an adult. Being a true adult means being comfortable with who you are and making decisions that are best for you and your family.
It’s worth repeating again. When it comes to home ownership; buy a home, not an investment.