“I’m in my mid-late twenties and I would love to buy a house but I just don’t have the money. My elders tell me I can buy a house with little to no downpayment at all. Terrible advice.”

“I’m in my mid-late twenties and I would love to buy a house now but I just don’t have the money. I work full-time and make a reasonable wage for not having any dependents but it is very difficult to save a a $20,000 downpayment. My elders tell me I can buy a house with little to no downpayment at all. Terrible advice. My rent is still slightly less than a mortgage payment (with utilities included). All I can do at this point is keep feeding my RRSP.”
tiredofsex in the comment section at the Globe and Mail 5 Apr 2012

A 20-something who is perhaps wiser than their ‘elders’.
– vreaa

23 responses to ““I’m in my mid-late twenties and I would love to buy a house but I just don’t have the money. My elders tell me I can buy a house with little to no downpayment at all. Terrible advice.”

  1. Almost an aside — I don’t get why the poster is claiming it’s so hard to save $20k. Someone in their mid-late 20s earning “a good wage” with no dependents should be absolutely socking it away. The TFSA alone should contain >$20k by now.

    Either “a good wage” isn’t, or the poster is spending a lot on something.

    Now, what you can get with a $20K downpayment is another question entirely…

    • In Germany, to get a low interest loan, you have to have 6 years of a demonstrable ability to save. Otherwise you’re told maybe renting is more your style.

      • Germany’s bubble is just getting underway.

      • Some countries that have been to date rather immune from asset bubbles are starting to show some signs of investment excess. German exports are going to start dropping as peripheral Eurozone austerity measures take hold. Where then will they turn to tide them over? (Hmmm…)

    • Say he has been working for 5 years and has a student’s loan to pay back. Yeah, it’ll be tough to save up that downpayment.

      In the 70s, 40k could buy a nice house in a good location, This piece of info stuck in my mind because an old family friend gave the full sum in cash so his 23yo son could own a house free of mortgage and not pay a cent on bank interests. 4 years later, he came to live in the same city and was driven straight from the airport to a rental apartment where he stayed until he died some years ago.

      “My elders tell me I can buy a house with little to no downpayment at all.”
      His elders aren’t that dumb after all.

      Relax folks, try to look at the funny side of things. 😉

  2. TFSA is the way to go here. Socking away in an RRSP might have been good advice 20 years ago but seems like the returns are way down if non existent over the last decade.

    If there is light at the end of the tunnel, this writer at least can expect to be able to catch up on the housing prices in this area as they head into their 30s and should see their income increase.

    Ultimately, I feel that the right answer falls somewhere between the writer and the elders. Save up more than the minimum down payment and be sure to have the ability to manage an increase in interest rates. A simple online mortgage calculator should be able to provide you the numbers you need.

    • “Save up more than the minimum down payment and be sure to have the ability to manage an increase in interest rates”

      Digger I get that but there are other risks to consider, most notably that assets can turn decidedly illiquid and underwater. If prices are high, regardless of the ability to service the loan based on the set of most likely scenarios, there is still risk on the table that would not be there if the purchase price were more in line with incomes and rents. No amount of fiscal prudence can compensate for this and available hedging strategies are few and wanting.

      • “…there are other risks to consider, most notably that assets can turn decidedly illiquid and underwater”

        most buyers don’t plan their lives around speculating on short term property increase or decrease. There are some here who’ve been waiting for a crash for many years; absolute lunacy.
        Basically jesse, a speculator is a speculator whether it’s on increases or decreases.

      • Jesse, the assumption my post is that the writer is not buying in the current market. Rather, saving for a couple to a few years and then investing in a market that is stabilized. I feel that housing prices in Vancouver are in the process of stabilizing which would allow the writer a chance to “catch up” and manage a mortgage. The writer states that their current state would have a mortgage close to what they pay for rent. Based on that, and the scenario of rent vs buy I would take the buying option and build up equity in the home.

        I also am a believer that a “house is a home” and only part of any investment portfolio, not the only investment. If the writer is looking to get in and flip then all bets are off.

      • How did that work out for millions of families experiencing housing bust in US, Ireland, Spain, Japan, Formula 1. They didn’t bet on short term up or down, they just want their own little space/home without having to worry about landlord kicking them out to the curb one day. Didn’t work out so well did it???

      • ” a speculator is a speculator whether it’s on increases or decreases”

        A speculator with some skin in the game is an entirely different beast from the kibitzers.

      • “Based on that, and the scenario of rent vs buy I would take the buying option and build up equity in the home.”

        Fine but my point is that there are risks in this market that go beyond the “buy vs rent” comparison in a vacuum. If the house is a home there are still other practical considerations.

        I’ll be honest with you: I have decided it is impossible to draw a meaningful line between “home” and “investment”. I’ve seen too many cases of people getting them mixed up, often to a point where it’s more an audition for an absurd play. Best to treat asset purchases for what they are, an investment in an economic system as would be buying a cup of coffee to get me through the morning.

      • space,
        What about the families in NZ, Australia, Sweden, Norway, France, Austria or any of the other dozens of housing markets that have been stable throughout the real estate turndown in the US, etc.?
        Why do you insist on comparing Canada to depressed markets when we have more in common with the stable examples?
        Wise buyers will look for deals in the current market and hold long term. Speculators will wait for the crash that most certainly will not occur.

  3. Ralph Cramdown

    This is a breakdown of the social contract. Convincing your juniors to buy property, thus bailing out their elders, is a sacred trust. If you break the chain, real estate stops always going up!

  4. The best investment many of us can make at that age is an investment in ones self, not real estate, IMHO. Travel, education, freedom…enjoy your youth, enjoy the experience. But you likely already know these things.

    • To some it’s more than an “investment” or a “home” – it’s a life goal.
      After that, they can focus on their other goal: “Be famous”.

  5. Paul Streppel

    terrible advice, i agree. The mid-late 20’s individual shows signs of being under the influence of a Saturn in Scorpio, (born 1983-1985). The moniker ‘tiredofsex’ is a pretty good clue, as well as discounting advice from apparently wealthy ‘elders’. Scorpio rules ‘other people’s money, ‘sex’ and ‘death’ This kid will have a much easier time passing on the ‘family formation’ urges so indicative of late 20’s individuals. Much easier for them to pass on marriage leading to house buying… until the ‘elders’ are dead.

  6. Thanks you for that heads-up on the CKNW interview with Peter Ladner today Vesta. Really good talk on the Bill Good show (hosted by Michael Smyth) and very much to the point. I have not heard Peter speak before but he is clearly well aware of the problems with excessive foreign investment in Vancouver and I thought he did a tremendous job articulating the worries that area residents have.

    As an example he mentioned the quality of local services and how this has brought foreign money in yet the downside for locals (and especially young people) was that those same good grades ended with them effectively having to move elsewhere as they were priced out of their own home town.

    So many good points. I hardly know where to begin. The impact on local business is one….how the city is becoming “aged” and losing young people, why this is a negative for the cities prosperity etcetera. There were solutions offered for the many problems the city is facing too and Peter has been quite candid in addressing the issue of Chinese investment without sounding racist yet acknowledging they are the largest group of foreign buyers.

    He won me over. You must listen to the interview for yourself.

    http://www.cknw.com/Channels/Reg/News/TheBillGoodShow.aspx

    Go to “Hour One” and click on the recording and then tune it at the 18:30 mark.

    • Ladner said what I’ve been pointing out for some time now. But he blames the lack of family appropriate units in Vancouver on the buyers, not the developers, or The City. In fact, the city is addicted to small units because it produces more tax revenue than a unit twice the size which could house a family.
      Ladner also sounded pretty resigned on any changes to immigration, defaulting to “it’s a federal government” problem – not realizing that land sold in Vancouver is controlled at the local level and can provide solutions
      I thought Ladner was pretty long on belly-aching and pretty short on solutions

      • Agree with you on one important point, Formula. Local land sales are indeed within the regulatory control of the City of Vancouver (and Provincial regs). It is incumbent on them to step up to the plate and take action to see the business community is not being adversly affected by too many absentee owners. They should be ensuring that the city remains viable with an active population of residents that represents ALL age groups and families (not just those who are wealthy and want to park money). Peters comments were brilliant in my opinion.

    • Great stuff. It’s that uncomplicated. Yet the ones running our city, province and country, can’t see the forest for the trees.

  7. @vreaa

    You’ll probably love this if you’ve never seen it.

    http://www.craigslist.org/about/best/bos/177040375.html

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