Generational differences, lifestyle choices and finances are all affecting the traditional perception of “home”.
There are few things as personal as your home. It’s where you hang your hat and where your heart is. It’s your own special place in the world. Whether you raise your family there or just use it as a place to sleep and put all your stuff, choosing a home must be the right fit. So what meets your needs? One of the biggest questions you’ll need to answer is: should you buy a home or should you rent?
Both buying and renting have upsides and downsides and while there will be a million considerations that will influence the decision, but they can be boiled down to two basic factors, lifestyle and finances. These two factors are unique to each person and may change more than once over a lifetime.
LIFESTYLES OVER A LIFETIME
In the real estate world (renting or buying), “lifestyle” seems to be a key word everywhere you look. “The decision to rent or buy has a lot to do with where you’re at in your life and what you are looking for,” says Sherry Donovan, CEO of the Nova Scotia Home Builders Association (NSHBA). “There are many factors. Family size, location, local schools, what is available in the community, and so many others that determine your lifestyle and what you are looking for in a home.”
Young and Growing Families
Most first-time homeowners are young families. According to Statistics Canada these are primarily the Millennial (20-34) and even the Gen-X (35-50) generations. Many of these families are focused on putting down roots in a community, developing homes for their children and
the lifestyle they want for their families, and building equity for their retirement. For them, taking on the responsibilities of home ownership makes a lot of sense. But for many first-time buyers the financial hurdles can be significant, so a first (or starter) home may not have all the elements or quality of products you would ideally want. However it may allow the owners to build enough equity to buy a second-time home in the future and begin to establish those roots for the lifestyle they want for their families.
Scott Smith, owner of Rooftight Construction, has been building homes for 20 years. “First-time buyers tend to choose a home based on location and price and make their family fit their home. They are looking for a starter home and the best bang for their buck in what they can get,” says Smith. “First-time buyers don’t tend to buy on energy efficiency or the perfect space, but on price.”
However, second time buyers tend to be those that have growing families and have built enough equity when selling their first home that they can be more focused on upgrading.
Second-time home owners are more about upgrading. They are in the 35-55 age group and have built equity by selling a first home. “There are two things that these home buyers are looking for. The first thing is they’re looking to fix mistakes they made on their first home, so all the things they wish they had or wish they would have done. The second thing is they have a family that has grown so they are looking to build a home that fits their family now. That’s where our conversations with our clients usually starts – we interview families to see how their family lives and design a home around that,” explains Smith.
Smith and Donovan also bring up an additional point: the differences between buying an already lived in home versus buying a newly built home. When buying an already lived in home or with renting, there is less certainty in where the home is in terms of its lifespan and so budgeting for repairs and renovations can be difficult.
“A major benefit for owning a new home is knowing what you’re getting,” says Donovan. “You’ve chosen the products and materials to build the house and you have the warranties in hand. With that, along with a home warranty, you can better budget for the home’s lifespan. When renting you don’t have that luxury. You may not know the age or quality of the products or have any control over upgrades.”
Smith adds that what attracts many second-time buyers to designing a home is that they can opt for energy efficient homes. Energy efficient homes allow for better budgeting with water and energy bills and greatly increase the re-sale value of a home.
The Lock and Leave Lifestyle
Within the Gen-X and Millennial generations it seems there are more people delaying or deciding not to have families or needing increased flexibility due to the nature of the modern work-force. The days of working at one job for 30 years is gone. Moving between cities and provinces is becoming common in the modern job market.
For these lifestyles, taking on time and money needed for house ownership and maintenance may not be the best choice. Being tied to a mortgage doesn’t make sense when you don’t know yet where you will be in five years. Renting allows for greater mobility because at most your commitment to a home will be a one-year lease.
Jason Brunt, Vice President of Business Development for Clayton Developments, feels that it is very important that housing opportunities fit all lifestyles. He makes the point that market forces have changed over the years.
“Right now is relatively unique,” explains Brunt. “We have a couple factors going on that are driving some different behavioural patterns. The region has a very diverse demographic audience and a very diverse financial audience as well. So the key for this market, from our perspective, is to make sure we cater to as many segments as possible.”
“What is more relevant right now is lifestyle choices. When you compare the top and the bottom ages of the demographic spectrum, there are a lot of consistencies between them that never would have popped up before,” adds Brunt.
“Take for example property maintenance vs. alternative lifestyle interests: just as many young individuals enjoy ‘locking and leaving’ as you see with the older generations. If you go back ten years, the focus was primarily about building equity in a home for your future retirement plans and planting roots in a community. Those factors are still very important for younger families with children who gravitate to home ownership, but the lifestyle and the way people choose to live has superseded that.”
However, the lock and leave lifestyle could be accommodated by either renting or buying. Renting allows people to havea more transient lifestyle, but for people who want the flexibility, yet still want to own their home, there is the option of a condominium.
Condo developments cater to aging- in-place, downsizing empty-nesters, and younger couples without children because they offer a lot of the features and benefits of a stand-alone, single family dwelling or a private property, yet without the need for maintenance.
In contrast to this, Smith’s new home clientèle rarely includes empty-nesters or seniors. “Most empty-nesters these days are going to rent apartments or condos and are really trying to scale down.”
According to Smith, the reasons why empty-nesters and seniors in Halifax go
towards renting is because it is frequently their only option for downsizing. “Their homes are typically older and need a lot of work to fix up and there are no developments in metro that offer purchasing single family seniors’ living.”
Master Planned Communities: Mixing it up to meet the needs of the majority
Availability of appropriate housing or options to buy or rent are currently an issue in Nova Scotia, particular in Halifax. As these market demands change, the housing industry needs to modify their developments to keep up with the changes.
For people to be able to make the best decision between buying and renting, whether it’s a house or multiple unit such as an apartment or condo, the housing inventory and options have to be there.
Brunt explains that this consideration is the core of Clayton Development’s master planned communities. From Brunt’s perspective, making sure a variety of housing options are available is key in community building.
“The Parks of West Bedford is a great example of a master planned community. The intent is to make sure we have a cross- section of multiple housing types, with both ownership and rental options, to make sure that the community is built diversely. By doing so we can cater to as many people as possible regardless of their age, lifestyle, and individual needs.”
One of the positive elements of a master planned community is that it allows for people to remain within a chosen community as their needs change, such as transitioning between renting, buying, upgrading, or downsizing.
FINANCES & ECONOMICS
There are many economic factors that go into the decision to buy versus rent a home. Some people want to “grow” their money by investing in home ownership and building equity. Others see the additional (“real”) costs of home ownership as outstripping the benefits and opt for renting instead.
The “real costs” of home ownership
The down payment is probably one of the key considerations when deciding whether to buy a home. “The financial system has a lot of rules and regulations on how they will accept the down payment, how they will allow it to be supplied or provided,” explains Andrew Gibson, Bank of Montreal Mortgage Specialist in Nova Scotia.
“First and foremost, we try to get a sense of what a future homeowner’s plan is. Is this a first home, starter home, or forever home? Then we start to have a conversation around what is their budget, what do they think they can afford, what is their current lifestyle. We also want to talk about what the bank’s parameters are in terms of affordability and the financial requirements to qualify”.
Financial requirements to secure financing include employment stability, credit factors, and level of debt obligation. “These financial factors can be an obstacle for many first-time buyers. We work on a case by case basis with people and try to help them make ownership possible whether immediately or down the road,” says Gibson.
When calculating the “real costs” of home ownership, items to consider include: down payment, closing costs, property taxes, responsibility for all utility bills, regular upkeep and maintenance costs, as well as the lifespan of the home and repair and upgrading costs. Financial benefits include building equity, developing credit options for future projects, re-sale opportunities, and the financial ability to eventually upgrade to a second home from a starter home.
The financial pros and cons also need to be matched to the person’s lifestyle preferences and financial position. While there are many benefits to owning, including long-term investment, it is expensive and often means financial sacrifices elsewhere.
“People want to maintain a standard of living that they enjoy, which will impact their housing choices,” Donovan adds.
Renting could allow for more saving ability on a month-to-month basis compared to owning a home. For those who would prefer a better car or to travel each year, owning may not be the best option.
Market influencers and forecast
There is no doubt that the market demands and building trends have changed in Nova Scotia, particularly in Halifax over the past 20 years. Guillaume Neault, Principal, Market Analysis (Halifax) at the Canadian Mortgage and Housing Corporation (CMHC), says that CMHC research indicates that housing market and demographic changes including increased aging populations, the job market, ups and downs in employment for different demographics, immigration and emigration, and changes in the local and national economy are all affecting the housing market forces.
Nova Scotia has suffered drops in sales volume and price growth in recent years, particular for the age groups in the 25-34 year range resulting in a slump in the new homes industry and low rental vacancy rates, explains Neault. Home builders are keeping a much smaller inventory and home values have gone up.
However Neault indicates that the economic forecast predicts better times ahead. While too early to say for 2016, CMHC research indicates that the trends for 2015 and part of this year’s first quarter are showing increases in employment and buying power that will hopefully in time lead to the return of prosperity in our housing market.
But beyond these external factors, people are making different lifestyle choices than they did years previously. “It’s not a specific demographic anymore that’s walking into any one of these options in renting versus buying. A lot of it is strongly dictated by the lifestyle the individual wants to lead,” concludes Brunt.
While trying to decide whether to buy or rent a new home is complex decision, for most the decision will primarily come down to their lifestyle choice and the building industry in Nova Scotia is standing up and listening to those market demands.
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