Last year, I got married and my husband and I bought a condo. Our lavish wedding, and the down payment for our home, was funded largely by savings, along with some generosity from our families. Even though we pulled it off, not all your Gen Y clients will be as lucky.
Our experience-centric generation goes in big for pricey weddings, so a discussion about the constant upward direction of home prices might be needed to spur frugality. It’s your duty to prepare these couples for the true costs of home ownership—and to get them focused on what they ultimately need.
Economists agree Canada’s housing market is overvalued. Yet, of the Big 5 banks, not one has actually come out and said we’re in a bubble. In fact, Sal Guatieri, senior economist at BMO Capital Markets, told me, “We’re not in a bubble. Therefore, we aren’t calling for a meaningful correction.”
I disagree. From the time the Great Recession technically ended in June 2009 through the end of 2012, the Canadian Real Estate Association says the average price of a home in Canada jumped 24%. And that figure keeps rising, in part because many investors consider real estate the only remaining safe asset. In October 2013, the average price of a home was $391,820—an 8.5% hike from a year earlier.
This means the housing market hasn’t experienced a correction in years. Add 2012’s mortgage rule changes, which increased down-payment requirements and shortened amortizations, and it’s fair to expect younger clients will face continually rising housing costs.
How can you help? Start by ensuring your clients’ goals are realistic. For instance, my husband and I were set on a one-bedroom plus den in downtown Toronto, to be close to our jobs.
Reality check. Those properties cost upwards of $550,000—well out of our price range.
Though our financial advisor helped set our initial budget, we would’ve benefitted from his being more hands on: working with our realtor, and telling us straight up which areas we could afford. He didn’t. So we wasted time viewing unattainable properties hoping to find an affordable gem. We didn’t, and settled on a place just outside the city.
Afterward, we politely asked him to be more communicative in the future; otherwise, we’ll take our business elsewhere.
Another lesson: although we’d planned for condo, realtor and legal fees, we were surprised by just how much it cost to move our household goods. If you really want to help Gen Y budget for a home, break down all expenses, including items that seem small, like a home inspection (see “How much?,” right).
Helping us buy our first homes is a key step in gaining our loyalty. And while our wallets are tight since many of us are just starting our careers, they won’t always be. As we hatch big plans for the future, we not only need advisors who will take time to work with us, but who are also prepared to be blunt when those plans are oversized.
Suzanne Yar Khan is a Toronto-based financial writer.