Top 10 Reasons to NOT Purchase a Home
Why would we want to talk about the reasons not to purchase a home? Well, it’s just not the right fit for everyone!
Conventional logic suggests that after graduating high school, you should attend university, get a job, get married, buy a home, maybe have kids, buy a better home, then retire.
While many Canadian adults still follow this standard to an extent, a generation of contrarians has emerged. Millennials – who make up 27% of the population – are developing a new norm after realizing they can be just as fulfilled in life following a different path. It’s likely the upcoming Gen Z (born starting in 1997) will continue this trend.
For many in these younger age groups, this deviation is rooted in a refusal to purchase a home, as homeownership doesn’t always fit their lifestyle ambitions. In these instances, being a long-term tenant may have more advantages than buying a home and could be reason enough to avoid purchasing a property.
10 Reasons To Not Purchase A Home
Life happens in stages. In your childhood and adolescence – up to early adulthood – you wouldn’t be expected to buy a home. However, once you have achieved some level of success in your mid to late twenties, pressure mounts to become a homeowner.
But studies reveal it’s increasingly difficult for millennials to purchase property in comparison to their predecessors. So, why do many still strive? The idea is that with homeownership comes a modicum of stability and satisfaction, both of which have diminished significantly in recent years. The truth is, for some, homeownership is no longer the foundation of comfort or the bedrock of success. Instead, it can be seen as another responsibility that does not add to their ambitions or life goals. In these instances, listed below, renting may be the better choice.
#1: You View Homeownership Primarily as an Investment
Property is promoted as an excellent investment vehicle. It offers lasting equity that owners can tap into to generate more income. However, as far as appreciation goes, other low-risk investments can provide a similar ROI.
Furthermore, when you break down the cost of homeownership you may lose some of the gains through maintenance and renovations. This is more of a concern in major cities outside of New Brunswick. A city like Toronto mirrors many of the characteristics present before the housing collapse that affected millions of Americans. Homeowners here may not see their investment appreciate at rates currently synonymous with these big city markets.
#2: You Aren’t Ready To Settle Down
A traditional mortgage in Canada lasts up to 25 years. For some millennials, that number may seem daunting. As a young adult, that sort of long-term commitment may not be appealing. You may want to travel or explore other professional or personal interests, all which homeownership can restrict. You’re committing on some level to a residence, location, and a monthly financial instalment for a long period of time. This can easily be added to your list of reasons to not purchase a home.
#3: You’re Not In A Stable Relationship or Don’t Have Job Security
To realize the value a home has to offer, you should have a stable job or – if you have a co-borrower – be in a stable relationship. Without this stability, maintaining (or even obtaining) a mortgage can become a stressful and laborious endeavour. Unlike a rental, you are tied to your home until you choose to sell. Even when you decide to sell, you’re at the mercy of the property market and buyers. The process can be complex and takes time. Time you may not have if you break up with a partner or lose a job, as the urgency to sell can often put you at risk of losing the profit you’ve acquired on your property.
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#4: The Temptation To Borrow More May Be Overwhelming
According to recent data, the average debt-to-income ratio for most Canadian households is 177% or $1.77 for every $1 of disposable income. When you own a home, not only does your debt-to-income ratio increase, but you may be at risk of borrowing more money.
This usually occurs when you want to access the equity you’ve acquired in your home, as the only way to access that equity is through a sale or a loan. If you take out a second mortgage, not only do you increase your debt, but you also reduce – or overextend – your equity.
Other investment channels offer far more flexible terms that allow you to benefit from them periodically, removing the need to borrow more money to realize their ROI.
#5: Taking on Substantial Risk isn’t Appealing
Another risk involved in homeownership, besides the debt, is the regular cost to upkeep your home. As a tenant, you do not have any risk associated with the home you reside in. You are not responsible for repairs or renovations. You do not need to be concerned with the housing market or insurance. The cost you pay on rent is predetermined, levied to you monthly. If you realize you can’t afford the home, you can find another rental when your lease expires. Though, with rental prices increasing, finding a rental can be a difficult task as well.
#6: You Don’t Have Enough Savings
The idea that you need a 20% down payment is outdated. You can now own a home with only 5% down (plus other closing costs). However, as previously mentioned, you need to have enough savings for emergency repairs, ongoing maintenance, property tax, homeownership insurance, and – often overlooked – landscaping. These are reoccurring costs you must cover in addition to your mortgage costs. These costs can amount to 1% of your home’s worth annually. You also need to have reserves for unexpected repairs, so you don’t need to use credit or take out loans when you’re faced with a leaking roof or faulty electrical system.
#7: You Don’t Have Dependents
Security is vital to developing children. Owning a home is a critical factor in building that security. Consequently, if you have – or want to have children – a home is a great investment. Besides producing equity, homeownership sets your children up for a brighter and balanced future. However, for the many millennials who have chosen to be child-free or only have children later in life, this may be one of the stronger reasons not to purchase a home. If you fall into the latter group, you may choose to forego homeownership for the time being, at least until your family dynamics change.
#8: You Don’t Have Any Way to Offset Losses
In other words, you could be putting all your eggs into one basket. This is particularly relevant if you’ve been saving money exclusively for the goal of purchasing a home. If you’re using property ownership as an investment vehicle, the losses you sustain when the property market fluctuates cannot be offset by a diverse portfolio, as is the case with other investments. If you make a loss when selling your home, that loss can difficult to recover.
#9: You Want to Buy Property in A Major City
Cities like Toronto and Vancouver are known for their inflated home prices that don’t leave homeowners much leeway. The similarities shared between them and the US housing bubble of the early 2000s are striking, according to experts. For buyers looking to purchase in these markets, the likelihood that the home they purchase will still have the same worth in a few years as it does now is low. Instead, pundits believe major-city homeowners may be left with extensive debt when they try to offload the property. Smaller provinces, like New Brunswick or Nova Scotia, with smaller cities will be a better choice for first-time buyers.
#10: Your Lifestyle Doesn’t Reflect the Norm
Many millennials are choosing to freelance, invest money in digital commodities, and live more sustainably. These lifestyles don’t establish themselves in homeownership and can often be hindered by conventional property ownership. If you form part of the many millennials that choose unconventional careers or methods for financial management, homeownership may not be necessary to live the fulfilled life or have greater control of your finances you desire.
Renting shouldn’t be shunned. If your life isn’t designed for homeownership, decide to do what supports your ambitions and financial goals.
If homeownership still forms part of those goals after reading all these reasons to not purchase a home, consider venturing beyond the major cities. While Greater Toronto and Greater Vancouver get plenty of time in the sun, for younger buyers, the cost of buying a home and residing in these areas isn’t always feasible. That doesn’t mean you can’t purchase a property. You may realize you can comfortably buy a home in a city like Fredericton and still live the Canadian dream. It all boils down to doing what makes sense concerning your circumstances.
What’s the next step? Contact our team of real estate experts to discuss what’s right for you.
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