Our aging youth

It’s E-Day in the USA but don’t expect voting news here. We just tell you about canines, dog crate condos, macroeconomics and, of course, how to raise your children and have a healthy marriage. Next week, we’ll focus on how to replace the timing chain on an Audi, plus a great new lobster sauce recipe.

Today, let’s talk newbies. And America, too.

Traditionally, half the Canadian real estate market was owned by first-time buyers. The kids absorbed 50% of the available listings, letting others move up the property ladder and wrinklies get their money out to spend on cruises, new knees and Cialis. It worked.

But all that has changed in recent years as house prices escalated, then interest rates followed. The proportion of new purchasers has plunged to historic lows, while the buyers themselves are getting older. Also a first is the number of initial buyers who leap from Mom’s basement into ownership, without first renting. That’s fully a third.

So, who are the newbies?

They’re, like, ancient. Less than a quarter are under 30. A third (33%) are in their early thirties. The largest cohort – 43% – are older than 35. And the proportion of newbies relative to all buyers was a mere 12% last year and so far in 2024 has crashed to just one in ten. As stated, this is historic stuff. The starter home is gone. Urban condos too small to live in cost $750,000. And builders, in large part, have stopped building. We’re awash in unsold properties, so clearly this is a crisis of affordability, not supply.

Now let’s glance to the south. Comparisons are useful. The Yanks are the best standard against which to judge our own situation.

The share of first-time homebuyers in America has also descended to an historic low. But it’s not 10%, like here. Instead it’s dropped to 24%, from 32% last year. The average age of the newbies is similar to here at 38 years (last year it was 35). The average age for repeat buyers is a decrepit 61.

Say US realtors: “First-time buyers face high home prices, high mortgage interest rates and limited inventory, making them a decade older with significantly higher incomes than previous generations of buyers.”

We get it.

And let’s recall Americans can score a 30-year-long mortgage with interest rates that never change during that period. They can write off portions of mortgage interest and property taxes. They have scores more cities and towns to choose from. And house prices are, on average, 40% less than here.

By the way, both Trump and Harris acknowledge the States has a real estate dilemma on its hands. The Democratic candidate even pledged giving $25,000 downpayment gifts to new purchasers.

And this is interesting. Of all buyers in the US, 62% are married. The number of single female buyers is 20% (up). The proportion of single male buyers is just 8% (falling). The average age of sellers is the highest ever recorded, at 63. And the greatest number of multigenerational homes ever purchased is taking place, as family members move in together – aging parents, boomerang kids and basement-dwellers.

What do we make of all this?

In one word: unsustainable.

Lately mortgage rates in Canada have plunged from over 6% to 4% and are on their way to a three-handle. The price cap for mortgage insurance was exploded higher and required downpayments have plunged as a result. We allow newbies to take large tax-free amounts out of RRSPs for deposits and have created FHSAs with unparalleled benefits. We’ve given 30-year amortizations to all new buyers. We’ve trashed zoning laws protecting single-family hoods to allow cheaper builds. Collectively we’ve spent more than $7 billion trying to find a path to affordable homes.

It’s all failed, clearly, when new buyers are 10% of sales, down from half in decades past – and the bulk of buyers have started to sprout gray hairs and are vaguely worried about joint pain and retirement. The fact there are more than 51,000 available properties in the GTA at this very moment, and scant sales, is a red flag.

Now what if the US election delivers a president whose policies hurt our economy, lead to recession and a spike in unemployment, as economists warn?

Without any doubt, Canada has led the world in the financialization of residential real estate. We have created one – and only one – asset class allowing owners to fully escape taxation on gains. No matter how extreme the profits. No matter a person’s income, marginal tax rate or net worth. The result is massive over-investment in property, historic price inflation and inter-generational imbalance. Concurrent with that is $2.2 trillion in crippling mortgage debt.

Change takes courage. Let’s hope we find a leader with some.

About the picture: “I just wanted to say sorry for all the bullshit you’re routinely sent from the wackos and cultists,” writes Marc. ” Don’t forget they’ve been programmed, manipulated and ultimately… are mentally ill. I’m sure you already know this because you’ve decoded these morons and their antics so eloquently in so many blog posts. The Russian bots and social media algorithms have pushed people to the edges these days… Some politicians and talking heads peddle the same ideas. Despite their loud voices and seemingly endless bullshit…It’s good to know there are still people who see through the nonsense such as yourself. Thanks for the insight and the blog. My simple b&d portfolio keeps growing and a lot of advice came from you. I now teach financial literacy to students as part of Ontario math curriculum. Teachers get a shit-ton of misguided aggression and culture war crap too. It’s a crazy world out there but all I can do is be grateful for what I have. Thanks again and be well!  You posted a pic of my dog and an excerpt from an email I sent you back in June 2022 – thanks for that! – here’s a pic of a wild sea lion that I swam with in La Jolla, Cali – Free, wild, and sort of a cat? …definitely fits the criteria for cover image of the next blog post.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/11/05/our-aging-youth/