There’s a Reason Millennials Are Buying Smaller Houses

…And it’s not just the tiny house craze.

Millennials have become a powerful force in the housing market. Although they’re waiting longer to buy a house in general, younger millennials are now stepping into the ring to buy their first home, and many of their older peers have already purchased and sold a home once.

But millennial home buyers, who make up 34% of the market, are different from their predecessors in some important ways. For one, only 11% of millennials think they’ll stay put in the house they buy. They’re content to live in the suburbs (despite popular misconceptions), but favour walk-able neighbourhoods and modern amenities like smart tech. And real estate is more than ever a family affair, with many first-time home buyers (66% of which are millennials) are recruiting help from their parents as they step into the world of home ownership.

One of the biggest differences between millennials and previous generations is that they think small when it comes to real estate. Gone are the days when square footage was king – millennials are increasingly gravitating towards condos, townhouses, and small homes on modest lots.

Why Small Homes Are Big With Millennials

There’s a reason millennials think less and more – and, no, it’s not all about the tiny house trend. It’s a matter of practicality.

You don’t have to be a demographer to know the average family unit has changed a great deal over the last hundred years. Gone are the days when families boasted five or more children; for the latter half of the 20th century, 2.5 kids was the norm in Canada.

This trend has continued, and today, more and more families are choosing to have a single child – or none at all.

A three-person family doesn’t need a four-bedroom house. Millennials are instead opting to fit their exclusive brood into smaller, two-bedroom houses and condos.

It used to be that more square footage was better – after all, the space would appreciate in value, and a bigger home would net bigger returns on resale. But with the housing market more expensive than ever, and first-time buyers contending with student loans and other debts, going big is hardly an option.

However, the real estate market has been slow to catch up with this trend. In 2016, 90% of newly-built single-family homes still had three or more bedrooms.

Taking that into account, it’s no surprise home ownership is at an all-time low. Only 62% of Americans owned a home in 2017 (coinciding with the lowest recorded fertility rate in that country).

While both numbers have climbed a bit since last year’s drop, they aren’t likely to return to old norms.

Another trend on the heels of this is the aging population of baby boomers, who are already beginning to downsize to smaller abodes in retirement. The demand for smaller homes is only going to go up.

Together, these trends will likely have a long-term impact on the housing market. There’s a shortage of affordable, smaller homes on the market, and a slew of millennials lining up to buy them.

So don’t discount the value of that tiny lot in the suburbs – it could be worth more than its square footage lets on.

 

 

3 Tough Questions for First Time Home Buyers

Just about every Canadian shares the dream of owning a home. And with interest rates low and house prices climbing ever higher in the GTA, many people feel pressured to jump into the housing market before it dries up.

first time home buyer
First time home buyers: don’t jump in until you’ve answered these questions.

Right now, real estate is undoubtedly a seller’s game. Between the dwindling home supply, soaring prices, bidding wars, and legislative changes, it’s tougher than ever for Canadian first time home buyers to enter this crowded market.

Many first time buyers in Canada are so busy wondering how they can buy in that they forget to ask themselves an even more important question: should I enter the market in the first place?

Before they phone the local realtor or hop on MLS, first time home buyers must ask themselves these three critical questions.

Can I Really Afford it?

This is the heart of the matter. Long-time renters relish the thought of putting their monthly cheques towards equity rather than the black hole of rent payments. But it’s never that simple.

Buying a home is not just a big down payment and a monthly mortgage. First time buyers are often shocked at the extra ‘hidden’ costs of home ownership. This includes closing costs (legal fees, sales tax, land transfer tax, etc.), property tax, monthly utility bills, home maintenance…

In short, it adds up quickly.

Don’t just speculate on these costs. Compare them to your current expenses as a renter and ask yourself: can I really afford to make the leap right now?

Can I Make the Down Payment?

What’s the lowest bar you need to pass to enter the market? Under Canadian law, home buyers must put down at least 5% of the purchase price on a down payment for a home valued at $500,000 or less. For homes above $500,000, the minimum is 5% for the first $500,000 and 10% for the remainder.

If you can’t make that payment, you can’t afford the house. You may have to adjust your spending, make a long-term savings plan, or borrow from your relatives. Regardless, it’s will take time.

Consider this an opportunity to think and re-think your decision to buy a home.

Does Buying a Home Make Sense for Me?

Your parents own a home. Some of your friends are settling down as well. Why shouldn’t you do the same?

Because for most people, a home is the single largest and most important purchase they will ever make. You have to make sure the time is right.

It’s not just a purchase. It’s a life event. Buying a home will impact the decisions you make in terms of family and career as well.

Do you plan on sticking with your current job? Could opportunities home up in a different city, or even a different province or country? Is there a chance you could get married in the next few years? Where does your partner want to live?

Moving is expensive, and there’s no way of knowing for sure what the housing market will look like down the line. Sellers are celebrating now, but that might not be the case in five, or two, or even a year from now. Make sure you’re ready to lay down roots before anchoring yourself to a home.

Here’s the Good News

You’ve made big decisions before. You’ve put thought into your education, your family life, and your career. You know how to sit down, take notes, do research and really think.

Do this you will make the right choice.

The housing market ebbs and flows, but it’ll always be there. Just because you don’t buy into the housing market today doesn’t mean you never will. Making a measured decision to delay your home purchase is more likely to pay off than thoughtless push to enter a tumultuous market today.