The annual State of Homebuying in Canada report noted that 56% of all purchasers were first time buyers in 2018. This dropped to 47% in 2019.
The tightening of mortgage rules which has been taking place over the last 4 years is certainly having an effect. The never ending rule changes were intended to slow home sales and prices. But like most government interventions, its had the opposite effect.
Something strange has been going on over the past decade. We’re often being told – and, in many cases, convinced – that it’s better to rent than to own.
I firmly believe everyone should own their home. In fact, I think we should own at least one investment property… and, in many cases, more than one, but I’ll get to that in a minute…
I can understand why many people, particularly Millennials, are believing it’s better to rent than own. After all, it’s easier to rent. Just look online for a condo or house for rent. Apply, sign the lease and you’re done. We’ll call this the Convenience factor.
Ontario’s controversial rent control is about to come to an end – and that’s a positive change!
When I was attending a speaking session with one of my favourite economists – Benjamin Tal – a few weeks back, he had a great quote: “There’s a Swedish economist who said, ‘Rent control is the best way to destroy a city, maybe besides bombing it.’”
Isn’t that the truth?!
In the GTA, rental units are scarce. And, says Tal, rent control would only further diminish the already depleted supply of available units.
Should I buy now with interest rates still hovering at record lows, or wait for prices to fall? When will house prices fall? … and by how much? What will the interest rate be in the future when house prices fall?
These are the questions most Canadians asking themselves these days. It’s no secret that Real Estate values are at an all time high in most parts of the country. The calls for a housing correction, crash, or bubble have been going on for almost 10 years now but it hasn’t materialized.
Rising house prices could make you rethink buying a home.. Could renting be better today? With the average home price in Toronto around $500k and the National average at $356k, renting might look more attractive. And for certain situations, like short-term accommodations and retirement living, it does make sense. But I’m not convinced that renting is right for most of us.
Some simple rules of thumb to remember when buying real estate:
you should plan on owning the home for at least 7 years. This will amortize or spread out any associated expenses with the purchase or sale of your home.
buying for investment should be a long term play.. again, 7 years is usually long enough to take us through any economic cycle of ups and downs.
forgot buying for a quick flip. Unless you are a professional renovator with a deep pockets, don’t try to imitate people on HGTV (yes, it’s another 4 letter word we shouldn’t repeat in public).
don’t buy at your maximum debt servicing ratios…. stretching yourself thin when interest rates are at record lows isn’t smart.
speaking of interest rates…. make sure to qualify yourself with an interest rate of 5.00% or higher.. this is a more realistic rate than today’s 3.09%… just plan for rates to go up… when they do, you’ll be prepared…
we won’t get into buying a rental property here… it requires more explanation.. but for many, it’s an even better investment than buying your principal residence… a topic we will discuss at a later date.
Type in Rent vs Own or Rent vs Buy on google, and you’ll find several recent articles on the subject. This one, from the Financial Post, stood out…. it’s against owning. The article explains that you will be better off, financially, if you rent… They even give an online calculator to prove the point…. Okay, let’s take a closer look at this calculator… Ah, there’s where we have a difference of opinion…. Their calculator assumes you can earn an annual 7.00% Return on Investment outside of Real Estate… And they are using annual house appreciation rate of 2.00%.
Hmmm, how many people have made an average annual return of 7.00% in stocks, bond, mutual funds over the past 5, 10, 15 or 20 years??? Most the people I know are still looking to match the stock market highs of 2000 or recover their investments from the 2008 crash. And using a 2.00% annual appreciation rate for real estate? Come on, let’s get real! Try typing in more realistic numbers like 5.00% investment return and 5.00% house appreciation and see what you get… And that 5.00% investment return is being generous. Real Estate becomes the winning choice…
We also have to factor in the intangibles. Not having to worry about moving because your landlord is selling… and not having to move the kids…. and just plain pride of ownership… There is something to be said for owning your home.. People tend to care a little more about the home they own.
Here’s another article from the Globe and Mail that isn’t against owning but is advocating you save up a larger down payment. I like the philosophy. Wait and save… but don’t wait for house prices to go down… that just hasn’t worked… Timing the market is always a tough thing to do…So even if house prices fall over the next few years, you’ll probably end up spending more on your mortgage as these record low interest rates are expected to go up over the next few years.. Here’s a calculator I found through The Star’s Moneyville. I typed in some numbers using today’s averages… rents, house price, mortgage rate, inflation rate, etc…. the results showed buying would save you over $400,000 over a 25 year period. Try it out.. see how it would fit your situation.