2012 vs 1984: Young adults really do have it harder today

[opendoor]

Originally Posted by Lt.Spears

To save up the 10-20% required for a DP shouldnt take that long, its the payments that are going to own you, Try telling a 1-2 year grad who makes 55K a year, that he has to spend over 1/2 of his monthly net income alone on mortgage payments. Makes it almost impossible to do.

There is a reason people are getting married/having kids at 30+ now instead of in their 20's, because its basically impossible to do.

But how does that compare to 30 years ago? The average price for a house in Calgary in the early '80s was about $100,000. Given the interest rates and amortizations available at the time, you'd be looking at paying about $12-13K a year in mortgage payments. In today's dollars that's about $28-30K or about $2400 a month.

[blankall]

Originally Posted by Red

"A house is a roof over your head and not an investment" - average Joe in 1985

"In North America, that (house) is the principle way that most people build wealth." - average Joe in 2012

Wonder why houses are so expensive.....

Housing has always been seen as a way of acquiring wealth. Otherwise, why not just rent forever. Historically, equity has been acquired largely through home ownership. That equity is often used to fund other investments, such as education for your children.

[afc wimbledon]

I think our idea of what constitutes a house has changed over the years as well though, my first house in 87 was a respectable 1500 sq ft on a large semi rural lot, that was a good family home then, it had one bathroom and a 2nd toilet, no ensuite or family room or media room or the like, now a family home has 2.5 bathrooms 2,300 sq ft with a rec/media room as wel, how many houses do you see these days that don't have a walk in closet?l.

What we call a townhouse now used to be a family home, and in the 70's kids shared a bedroom with their siblings.

[Cowboy89]

Originally Posted by blankall

Housing has always been seen as a way of acquiring wealth. Otherwise, why not just rent forever. Historically, equity has been acquired largely through home ownership. That equity is often used to fund other investments, such as education for your children.

Why not rent indefinately until prices reflect owning as a cheaper option?
Right now that's actually a better financial option in most Canadian markets. The rental costs vs. owning costs have rarely been this cheap in Canadian history. The hypothetical young adult in question here might actually get more utility now a days out of paying half as much to live in the same style of property while not being tied down by a mortgage. They might actually have room in the budget to save money for their RRSP and TFSA. Seems to be that the more 'common' the sense of building equity through home ownership became the less 'sense' it made.

[MarchHare]

Originally Posted by Cowboy89

Why not rent indefinately until prices reflect owning as a cheaper option?
Right now that's actually a better financial option in most Canadian markets. The rental costs vs. owning costs have rarely been this cheap in Canadian history. The hypothetical young adult in question here might actually get more utility now a days out of paying half as much to live in the same style of property while not being tied down by a mortgage. They might actually have room in the budget to save money for their RRSP and TFSA. Seems to be that the more 'common' the sense of building equity through home ownership became the less 'sense' it made.

A good friend of mine recently moved to Calgary. He wanted some time in the city before choosing a neighbourhood in which to buy a home, so he and his wife are currently renting an upscale apartment in Mission. His unit is of similar quality to the Beltline condo that my wife and I own.

This prompted us to have a conversation about the economics of renting versus buying. He pays about $1500/month for rent; we pay about $2300/month for mortgage, condo fees, and property tax. If he took the delta of $800/month and invested it in an RRSP or TFSA, who comes out ahead in 20 years?

[Lt.Spears]

Originally Posted by Cowboy89

Why not rent indefinately until prices reflect owning as a cheaper option?
Right now that's actually a better financial option in most Canadian markets. The rental costs vs. owning costs have rarely been this cheap in Canadian history. The hypothetical young adult in question here might actually get more utility now a days out of paying half as much to live in the same style of property while not being tied down by a mortgage. They might actually have room in the budget to save money for their RRSP and TFSA. Seems to be that the more 'common' the sense of building equity through home ownership became the less 'sense' it made.

Putting 1600/month is stupid when its literally going to nothing.

Even if your mortgage payment is 2000/month, at least it is going towards something that you will have.

Renting just throws money away IMO.

[Resolute 14]

Originally Posted by blankall

But if you look at the average incomes, if you were making 50k per year after taxes (which is what this article states many recent graduates were making), with lower rents and food prices, you could easily find a way to put aside 50k in 3 years even on one income. That was probably enough to buy a starter home (AKA a condo) outright and then save up for the real deal. Good luck doing that now.

Interest rates killed you back then, but you had much more opportunity to build capital through saving. The ratio of income to home price was many times higher.

The article points out that after tax income is 60k now. However, the price of food, rent, etc... has all gone up several times. It would take you 10-20 years of saving to buy a condo outright now. That's once you manage to land that 60k after tax (around 80-90k prior to tax) job. So basically, in 1984 you could probably own a condo outright fairly easily by the time you were in your early 30s and be looking to upgrade to your first full fledged home.

Currently, good look doing that before 45 or 50. And how are you supposed to fit having kids into that plan too.

While all this is true, there is one other factor that has been touched upon in this thread but not focused: single income vs. dual income.

Less than one third of married women in the US held full-time jobs in 1984. Dual incomes are pretty much the norm now. Perhaps out of necessity, but it does raise the household income average considerably.

So the question of home affordability in 2012 has to take into account the differences between single people (somewhat replicating the single income from the 80s) and couples who have dual incomes. And the associated costs of that - day care vs. stay at home parent.

And hell, why go back only one generation? If I grew up in my grandparents time, I would be a farmer with a far smaller social safety net, dependant on god and the weather for a good crop.

Are today's grads better or worse off than their counterparts of 30 years ago? Can't say. Better in some, worse in others. All you can truthfully say is that they are in a different position with different needs and priorities.

[undercoverbrother]

pffft 2012 young adults have it soo much easier. now you can cyberstalk women someone through facebook, twitter and I am sure any other number of computer related avenues.....in my day with had to drive by her place at 2 am to get any good stalking in.......

[FlameOn]

I think this is relevant to the thread... though it might be pre-1984

[hmmhmmcamo]

Originally Posted by Lt.Spears

Putting 1600/month is stupid when its literally going to nothing.

Even if your mortgage payment is 2000/month, at least it is going towards something that you will have.

Renting just throws money away IMO.

For the money we spend on rent, we get a roof over our heads, in the exact location that we want to live in. We get this while not having to worry at all about any maintenance issues/costs, strata issues (ie unexpected assessments), but most importantly, it won't bother me in the slightest when prices start coming down (and in Victoria they are).

It's pretty naive to just dismiss renting as throwing money away.

[Cowboy89]

Originally Posted by Lt.Spears

Putting 1600/month is stupid when its literally going to nothing.

Even if your mortgage payment is 2000/month, at least it is going towards something that you will have.

Renting just throws money away IMO.

Do the math, you're really just selecting which method to pay interest to the banks. Either directly through home ownership or indirectly through a landlord intermediary. Buying with a huge mortgage is really just renting money.

[bizaro86]

Originally Posted by hmmhmmcamo

For the money we spend on rent, we get a roof over our heads, in the exact location that we want to live in. We get this while not having to worry at all about any maintenance issues/costs, strata issues (ie unexpected assessments), but most importantly, it won't bother me in the slightest when prices start coming down (and in Victoria they are).

It's pretty naive to just dismiss renting as throwing money away.

Yeah, that's a common misconception that renting is throwing money away. The same argument could be made about mortgage interest, condo fees, property taxes, etc. You don't get that money back.

You need somewhere to live, so it makes sense to decide which option has the lowest total cost to yourself. It could be either, it's a matter of math and what assumptions for future rental rates, interest rates, real estate appreciation rates, and rates of return on alternative investments.

[Cowboy89]

Originally Posted by MarchHare

A good friend of mine recently moved to Calgary. He wanted some time in the city before choosing a neighbourhood in which to buy a home, so he and his wife are currently renting an upscale apartment in Mission. His unit is of similar quality to the Beltline condo that my wife and I own.

This prompted us to have a conversation about the economics of renting versus buying. He pays about $1500/month for rent; we pay about $2300/month for mortgage, condo fees, and property tax. If he took the delta of $800/month and invested it in an RRSP or TFSA, who comes out ahead in 20 years?

Would depend on the rate of return he achives on his investments and the rate of condo appreciation minus maintainence/improvement and selling costs. Personally from a financial perspective I'd rather have a well diversified liquid portfolio than a whole whack of home equity that's tied to the value of one asset.

[MarchHare]

Originally Posted by Cowboy89

Would depend on the rate of return he achives on his investments and the rate of condo appreciation minus maintainence/improvement and selling costs. Personally from a financial perspective I'd rather have a well diversified liquid portfolio than a whole whack of home equity that's tied to the value of one asset.

Yeah, it's an interesting thought experiment.

Lt.Spears's attitude that "rent just throws money away" is only true if you can buy or rent a similar quality home for the same price. That's usually not the case.

In the example of me and my friend from above, it works like this:

For $2,300/month, I get a roof over my head and equity in my home.
For $2,300/month, he gets a roof over his head and $800 to invest.

It's hard to say exactly who comes out ahead after 20 years because you have to make certain assumptions that may not turn out to be correct, such as the average rate of return on his investments versus the appreciation of the value of my home.

There are also other things to consider like the following: he never has to worry about maintenance or special assessments, I have more freedom to make home improvements that increase my quality of life, it's much easier for him to move, etc.

[Cowboy89]

Originally Posted by MarchHare

Yeah, it's an interesting thought experiment.

Lt.Spears's attitude that "rent just throws money away" is only true if you can buy or rent a similar quality home for the same price. That's usually not the case.

In the example of me and my friend from above, it works like this:

For $2,300/month, I get a roof over my head and equity in my home.
For $2,300/month, he gets a roof over his head and $800 to invest.

It's hard to say exactly who comes out ahead after 20 years because you have to make certain assumptions that may not turn out to be correct, such as the average rate of return on his investments versus the appreciation of the value of my home.

There are also other things to consider like the following: he never has to worry about maintenance or special assessments, I have more freedom to make home improvements that increase my quality of life, it's much easier for him to move, etc.

Another consideration is the amount of money your downpayment could be making had you invested it and then rented instead of buying a condo.

[shermanator]

I would argue that when first buying a place, the price of renting vs the price of owning is pretty similar.

When I bought my condo, the price of my mortgage / condo fees / taxes / utilities was not much more than the cost to rent an apartment. Now that I've increased my payments a few times, I pay about $725 more a month, which is the same amount of equity I get in my place.

The difference between renting and owning is that, at some point in time, you don't have to pay a mortgage. So eventually (after 25 years or so), you should be able to build up your equity quicker.

[AMG_G]

Originally Posted by shermanator

I would argue that when first buying a place, the price of renting vs the price of owning is pretty similar.

When I bought my condo, the price of my mortgage / condo fees / taxes / utilities was not much more than the cost to rent an apartment. Now that I've increased my payments a few times, I pay about $725 more a month, which is the same amount of equity I get in my place.

The difference between renting and owning is that, at some point in time, you don't have to pay a mortgage. So eventually (after 25 years or so), you should be able to build up your equity quicker.

Depends what price you bought at and how the market is when you are ready to sell. Japan's real estate has been in a slump for 20 years and this is with near 0% rates.

[GP_Matt]

Originally Posted by MarchHare

Yeah, it's an interesting thought experiment.

Lt.Spears's attitude that "rent just throws money away" is only true if you can buy or rent a similar quality home for the same price. That's usually not the case.

In the example of me and my friend from above, it works like this:

For $2,300/month, I get a roof over my head and equity in my home.
For $2,300/month, he gets a roof over his head and $800 to invest.

It's hard to say exactly who comes out ahead after 20 years because you have to make certain assumptions that may not turn out to be correct, such as the average rate of return on his investments versus the appreciation of the value of my home.

There are also other things to consider like the following: he never has to worry about maintenance or special assessments, I have more freedom to make home improvements that increase my quality of life, it's much easier for him to move, etc.

Something else to consider is that the rent will likely increase yearly for the next 20 years while your mortgage payments will not go up (ignoring interest variance). The $1600 in rent will most likely increase to $3000-$4000 in the final year.

[hmmhmmcamo]

Originally Posted by GP_Matt

Something else to consider is that the rent will likely increase yearly for the next 20 years while your mortgage payments will not go up (ignoring interest variance). The $1600 in rent will most likely increase to $3000-$4000 in the final year.

lol what? that's a pretty convenient thing to ignore.

[GP_Matt]

Originally Posted by Lt.Spears

My brother who works as a intermediate geologist just started making close to 80K after 5+ years of work.

No one i know who is a recent grad is making anything close to 80K a year unless they are doing fieldwork on the rigs.

For most people graduating they should be expecting to make 40-50 grand per year given the field.

To save up the 10-20% required for a DP shouldnt take that long, its the payments that are going to own you, Try telling a 1-2 year grad who makes 55K a year, that he has to spend over 1/2 of his monthly net income alone on mortgage payments. Makes it almost impossible to do.

There is a reason people are getting married/having kids at 30+ now instead of in their 20's, because its basically impossible to do.

My example was for people doing field work. I live in the north so field work is pretty common but it doesn't mean you have to be a roughneck. A lot of the field work is more pleasant and will provide great experience that will help immensely with your career. A ton of the O&G managers in Calgary spent their early years in the field. And working in the field means large amounts of overtime. My first summer in the field had a few 180 hour pay periods. At $21 an hour that worked out to $4830 for two weeks work plus a $15/hour premium when I used my chainsaw. (Technically Alberta Labour Laws limit you to 168 hours in a two week period but that was often overlooked due the lack of their definition of an emergency.)