Why Own When You Can Rent?

It used to be the other way around, did it not?

Which question is currently the rhetorical one?

With a red-hot real estate market, and a luke-warm rental market, it has economists and personal finance experts asking WHY so few people refuse to rent, when it’s actually cheaper compared to owning.

Let me first outline the costs associated with each option, and then the reasons why I think more people are buying instead of renting…

RentBuy

Let’s look at a unit currently available for sale in Liberty Village on East Liberty Street: a 1-bed, 1-bath unit with parking and locker, in a 3-year-old building, reasonably well-maintained, with decent upgrades including engineered hardwood floors, stainless steel appliances, granite counters, etc.

The unit is $1,750/month to rent, and $327,000 to purchase.

To rent, your expenses are pretty simple: $1,750 per month, plus hydro, so call it $1,800.

To buy, it opens a whole other subset of calculations.

Let’s say that you’re buying with a 10% down payment, or $32,700.

The $294,300 balance is going to carry for $1,331.59 per month.

But with a 10% down payment, you’re going to have to pay $7,063.20 in CMHC insurance, or $23.54 per month over 25 years.  This fee is not refundable, so if you decide to sell the unit after a month, or a year, you still have to pay the entire $7,063.20.

But let’s just add the $23.54 for now, and call the monthly payment $1,355.14.

Your maintenance fees are $316.41 per month, plus that $50 estimate for hydro.

Your taxes are $1,822.04 per year, or $151.84 per month.

So with the mortgage, maintenance, hydro, and taxes, you’re paying $1,873.39.

That’s it, eh?

Just $73.39 per month MORE to own, than to rent?

Well of course, it’s not that simple.

You’re going to pay $1,380 in Land Transfer Tax to acquire that property as a first time home buyer, or $6,375 if you’re not a first-time buyer.

You’ll also pay about $2,000 in legal fees upon the purchase.

So with CMHC fees, land transfer tax, and legal fees, you’re over $10,000 in sunk costs as a first-time buyer, and you need to have $32,700 in savings to even buy the condo in the first place.

Why not rent instead?

Why not pay less each month?

Well let’s not forget that out of that $1,355.14 monthly mortgage payment, over $700 is coming back to you in the form of principal repayment, and whether it’s cash in your pocket or a lower mortgage – it’s still equity.

Perhaps this is what many personal finance experts and newspaper columnists choose to ignore?

Allow me to outline the five major reasons why I think people are buying, rather than renting:

1) Low Interest Rates

I think this goes without saying, but it’s worth working through an example just to demonstrate how low interest rates have affected affordability, and thus why so many more people are choosing to buy rather than rent.

In the example above – the $327,000 condo, being purchased with a 10% down payment, and financing the balance at 2.59%, the monthly mortgage payment comes to $1,331.59 (before CMHC fees).

In the first year, the average principal portion of that mortgage is $708, and the average interest portion of that mortgage is $623.

I think people have become so accustomed to low interest rates, that perhaps they don’t recall a time when interest was actually MORE than principal!

Now what if rates were at 5.99% like they were in 2007 at one point?  How would these numbers look?

@2.59% – $1,331.59 mortgage, $708 principal, $623 interest
@5.99% – $1,881.20 mortgage, $432 principal, $1,439 interest

Crazy, huh?

Have you ever worked through these numbers?

Well, I know you have; you being my regular blog reader who is informed and astute.  But what about today’s young 20-something?  They’ve tuned out the stories from Mom & Dad about “……when rates were at 21% in 1980….” but will they tune out a 30-something talking about only seven years ago?

So at 5.99% interest, not only does it cost $550/month more for the mortgage, but you’re paying down $276 less per month in mortgage principal!

If rates were higher, would more people choose to rent?  I think so.

Then it seems to follow that low interest rates, via increased affordability, are likely the number-one reason why people today are choosing to buy, rather than rent.

2) Bank of Mom & Dad

There is a LOT of money floating around out there these days, and much of it is old money.

I don’t mean “old money” in the contemporary term to describe “generational wealth,” ie. a family living in a large house, who is wealthy because of their family before them, and that family was wealthy because of the family before them, and so on.

I mean old money as in the older part of today’s population is sitting on accumulated wealth, and it’s being redistributed through today’s younger population.

I remember the very first time a client of mine told me that his parents were helping him with the down payment on his condo purchase.  I thought, “Wow, that’s awesome!  What a novel concept!  And what a great set of parents!”

Now, it’s simply expected.

While I do get a young client from time to time who prides him or herself on having built up savings, and wants me to know, “I’m not getting any handouts; this is my money,” I would say that the norm is money from Mom & Dad.

There’s nothing wrong, or right, about this.  It’s just the way that it is.

I try to put myself in the mindset of a 59-year-old who has a 21-year-old daughter, but perhaps my style of parenting (I don’t have kids, but I like to think I’ll know how I’m going to handle them), is a bit different.

I would have thought many parents would want their kids to “learn the value of a dollar,” and “make it or break it on their own.”

Apparently, this isn’t the case anymore.

I asked a client of mine the other day, who is buying a condo for his 21-year-old daughter to live in while finishing her Masters, “Don’t you want her to rent a basement apartment for $900/month, eat Kraft Dinner on a hot plate, and see what the world is really like?”

His one-word response: “No.”

I asked, “Don’t you think that’s the best way for a young person to learn the true value of each dollar they earn from work, and see how far it goes in today’s world?  Don’t you think propping them up is a mistake?”

He responded, “Don’t know, don’t care.  But I don’t want my daughter living in a basement apartment, eating Kraft Dinner.  I want here in a nice, comfortable, safe apartment, and that’s the starting point, so whatever happens after that, happens.”

I feel like my Dad would have actually wanted me to live in a basement apartment, eating Kraft Dinner, as he’d have thought it would harden me as a man, and teach me to value things differently.

But today’s generation is different.

Those in their 50’s and 60’s have so much money, sometimes they feel as though they have no choice but to spend it on their kids.

One of my clients owns four properties – a primary residence, an multiplex, a cottage, and a vacation property.  He told me, “For me to sit on $6 Million in real estate and not give my son $30,000 for a down payment on a condo is absolutely cruel.  It’s unnecessary.”

The wealth that the baby-boomers, and those slightly younger, have accumulated over the course of their lives is more than they need at this point, so I see most of them giving it to their kids to buy real estate.

Of course, much of their collective wealth came through owning real estate, and thus they want their kids to get started early as well.

3) Societal Changes

One of the very first things we learned in Economics: wants versus needs.

I don’t know if much of today’s society can differentiate.

I don’t have stats to back it up, but I would assume that impulse purchases are at an all-time high.  Whether it’s the magazine you read in the checkout line at Metro, that you decide to throw on the conveyor on a whim, or whether it’s the article of clothing you see on a mannequin in a store window that you end up purchasing, as you just happened to walk by – our impulses seem to be in far greater control of us then they ever used to be.

I like a nice meal out at a restaurant from time to time, but I’m amazed at how many people go to restaurants like it’s a hobby!

I played golf with two guys recently and in the car on the way back, all they talked about were restaurants in the downtown core.  Each of them knew every single restaurant the other one mentioned, and it took a while to find a restaurant that the other hadn’t been to at least once.  “I actually went there last night,” one of the guys told the other guy, at the mention of “One Pizza” on King Street East.

Since when do people eat at restaurants 50-60 times per year?  This isn’t the way it used to be, and keep in mind that the prices people will pay for “a night out” are astronomical and in no way in line with inflation, comparing to what a young couple might have paid in the 70’s, 80’s, or 90’s.

Did young women buy the equivalent of a $2,000 purse in 2015 back in the 80’s?  Did they even have such a thing?

I feel as though people in society today just want things, and those wants are in no way aligned with their needs.

When it comes to real estate, the same can be said.

Many people simply “want” to own real estate, whether it makes financial sense, or whether they’ve put a lot of thought into the process.

With prices having done nothing but increase for almost two decades, I suppose they’ve proven to be correct.  But I feel that the reason for buying has less to do with price appreciation, and more to do with simply “wanting” to be a real estate owner.

4) The Next Generation

Along the same lines of what we just discussed in the section above, I see the “wants” of the younger generation pushing them toward real estate.

I’ve told this story before, but one of the kids I used to coach at Leaside Baseball reached out to me before he was even finished university, and asked about buying a downtown condo.  He gave me several reasons, but the one that stuck out the most: “I want to be the first one in my group to own a condo.”

Is that a good thing?

Is it a great goal to have?  Or is it irresponsible?

I told him to stay at home for 2-3 years, live off his parents for free, salt away his earnings, and reap the benefits of free meals, laundry, and all the “little things” like toothpaste, paper towel, and light bulbs.

But to him, owning real estate represents an accomplishment.  It’s a goal to set, then achieve, and then continue to build from.

The kids finishing university at 21-years-old used to go back and live at home for 2-3 years, then rent for 2-3 years, then buy their first place at 26-27 years old.

I’m currently working with three condo-buyers aged 22 to 23 years old, which is something I never experienced a decade ago.

5) The Market Continues To Rise

This isn’t rocket science, so I won’t belabour it.

The market has risen every single year since 1994, and shows no signs of stopping.

Why would you rent a condo and only really “save” $100 on a 1-bed, or perhaps $400 on a 2-bed, when you stand to make 5-10% in appreciation each year that you hold the unit?

Well, the market will go down at some point.

But when?

And how many people decided to start renting in 2009, thinking the market would go down, only to miss out on a 30% tax-free capital gain on their property?

People are buying rather than renting as they are afraid of missing out on further appreciation.

And the way the market has gone the last two decades, I can’t say I blame them.

As the old saying goes, “You can make numbers say anything you want,” and I’m sure we could find another property where renting it versus owning it saves $700 per month or something to justify renting.

But as the five reasons outlined above go, I think much of the buyer pool still wouldn’t care.

As a result, the rental market is sluggish.

Sooooo………maybe it’s time to consider renting after all?

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  5. Seeya says:

    Wanna bet Appraiser?

  6. Chad says:

    I think that while it’s important to analyze situations on a case by case basis, there’s a very simple one stop argument why owning is generally the better choice over renting, at least provided you’re looking for long-term residence:

    If owning wasn’t cheaper than renting, there wouldn’t be a rental market.

    If this were ever not the case, the rental market would cease to exist, as essentially every owner involved would be taking a loss.

    The only times I see renting as the better choice is when you need the flexibility to move or when you simply can’t finance ownership. You could argue there are better ways to invest your money. I could argue that by renting you’re financing someone else’s investment returns..

  7. steve says:

    David is correct … renting is cheaper and permits more flexibility. Our current job/work environment strongly suggests you will not be working at any one place for too long. Young people should rent until they become more established. But of course, we are discussing the “I want it, and I want it now” generation, so I realise that nothing will probably change until money becomes more expensive to borrow, or a major demographic shift occurs (this may already be happening).

    I’ve been a renter and and owner, and as an owner I ended up spending way more than I ever expected on home improvements/repairs.

    1. Appraiser says:

      @ Seeya:

      But I though the game was over when the feds lowered the max. amortization from 40 to 35 years, oops!

      Then the games was over when they lowered it to 30 years, oops!

      Then to 25 years, oops!

      Dream on.

  8. Appraiser says:

    Latest mid-month numbers are out today from TREB: Rent vs. Buy – You decide.

    “Toronto Real Estate Board President Mark McLean announced that
    4,332 sales were reported through TREB’s MLS® system by Greater Toronto Area
    REALTORS® during the first 14 days of July, 2015. This sales figure was up by 11.9
    per cent compared to 3,871 transactions reported during the same time frame in 2014.
    Over the same period, new listings were down by 5.4 per cent to 6,831.”

    “The average selling price for July 2015 mid-month transactions was $610,724 – up by
    11.5 per cent compared to the average price of $547,777 for sales reported in the first
    14 days July 2014. Year-over-year price growth was reported for all major market
    segments.”

  9. natrx says:

    Just buy. Don’t waste your time and effort. It’s going to infinity. Might as well become infinitely rich

  10. Libertarian says:

    One thing that changes the number crunching going forward is that the annual limit for TFSAs is now $10,000. So now renters who invest the difference can shelter any gains from tax, just as gains on a principal residence are tax-free.

    Since David is talking youngsters buying in their early 20s – an 18-year-old university/college student today will have $40,000 in TFSA room when she graduates in 4 years. She will then have to debate whether to make a down payment on a condo or invest it in the TFSA.

    I’m a homeowner, but if I had the TFSA long ago, it would have made me think really hard about buying. TFSAs with a $10,000 limit are awesome. I would go as far to say that TFSAs are now better than RSPs!

    If you believe the media reports, most Canadians don’t use their TFSA. Sad.

    1. Jason H says:

      TFSAs are better investment vehicle than RRSP’s.

  11. Kyle says:

    I’ve noticed it mentioned a few times in these comments. This notion that Toronto real estate prices MUST 100% fall when interest rates rise is complete fallacy. Interest rates influence real estate prices to be sure, but prices are driven as much by micro factors as macro. Also widget Economic principles have limitations when applied to housing. Widget factories need to sell widgets to cover their fixed costs regardless of whether it is a strong widget market, home owners don’t need to sell their homes and usually will not if they don’t think it’s a great time to sell.

    1. Joe Q. says:

      You’re absolutely right, it’s not 100% guaranteed — however, it would be a potent trigger. People tend to look at local history for examples, and the RE price correction that started in late 1989 was preceded by a significant boost in interest rates.

      1. jeff316 says:

        Agreed. I think it’s hard to argue that interest rate increases won’t be a trigger for price reductions, I think the argument is by how much and whether those reductions are considered a “correction”.

        The minute prices stagnate or slide we’ll have a slough of people pointing fingers, even if prices stay well-above “traditional” or “expected” levels.

    2. condodweller says:

      @Kyle Let’s take a $500,000 mortgage for example. At 2.75% the monthly payment is $2,302.56. At 6%, the payment is $3199.04. What % of owners do you think can sustain a $900/month mortgage payment increase? With a $500k mortgage the person will have about $100,000 family income which means their net income permonth is about $5155. Their housing costs including property tax, utilities, insurance will be over $3000 which leaves about $2000 for everything else like food, clothing transportation, student loans, entertainment etc. I propose that very few people save $900 per month that they can put towards their increased mortgage payment. Now this person can’t make his mortgage payment what do you think they will do? Will their income have increased by 14% to cover the increase? I don’t think so. Will the bank of Mom and Dad bail them out to the tune of $900 per month on a long term basis? Not likely. Will the bank foreclose on them? Pretty likely. Will they put the house up for sale? Perhaps. Maybe they will try to rent it out. What do you think this will do to rents if all his compatriots also do the same? Will rents decrease meaningfully? I think so.

      Now consider, I’m not saying this will happen this time around, but I think the chances are pretty good, that after 89 interest rates were about 12% (that’s what my parents had back then, for rent signs in front of houses were everywhere, and when I rented my 1 bedroom apartment for about $700 the max rent had been over $1000 prior. Now add job loss to the mix.

      Whatever the case I suspect that many homeowners will have to sell their homes. By this time people will be extra sensitive about house prices, especially if they continue to increase during the next few years, and as soon as people get a whiff of impending price decrease, even if it would be a small one, it will trigger an avalanche.

      A big variable in this, of course, is interest rates. You have to plug in a number you are comfortable with. What I would like to know is the stats on what % of those 75% home owners have a mortgage, and what % of those have a significant mortgage of say, more than 2-300,000, that would cause financial distress if rates increased.

      1. jeff316 says:

        “Let’s take a $500,000 mortgage for example. At 2.75% the monthly payment is $2,302.56. At 6%, the payment is $3199.04. What % of owners do you think can sustain a $900/month mortgage payment increase?”

        What percent of owners are going to go from owing 500 000$ at 2.75% interest to owing 600 000$ at 6% interest overnight?

      2. Kyle says:

        I don’t disagree interest rates play a part. Just like Jeff316 said, sure if Interest rates double overnight people will be screwed but that’s not going to happen. Rate increases are in response to inflation not to historic levels, so unless we suddenly go to 5% inflation like in ’89, it’s completely irrelevant what interest rates were in ’89.

        And no offense but all the other stuff you wrote is sensationalized conjecture. Practically speaking the impacts from rising rates are far more muted than you suggest. About 43% of homeowners don’t even have a mortgage (per Statscan 2008), so interest rates don’t affect them. Of the remaining 57%, about 57% of those have fixed rate mortgages and only about 20% of them renew each year. Those that have a recent variable rate mortgage would still have had to qualify at the Benchmark Qualifying Rate which is much higher than 2.75%, meaning they have capacity to absorb increased rates. Also practically speaking most homeowners did not just buy their house this year, most have had their place for a few years and are already paying more than 2.75%. Meaning time has elapsed and their incomes have probably risen since they originally qualified for their mortgage again meaning they have capacity to absorb increased rates and the differential when they renew will be a smaller delta.

        Secondly this notion that people sell their house because prices are falling is again pure fallacy. History shows when house prices are dropping, people don’t respond by selling their house, they respond by doing the opposite and holding so long as they can afford to.

        And finally households who make $100K don’t qualify for $500K mortgages, and if by some miracle they did, that is hardly typical. The typical Toronto mortgage applicant is borrowing 271K and they have a household income of 126K, per https://www.superbrokers.ca/stats/canadian-mortgages/ontario/index.phtm

        1. condodweller says:

          You need to read more carefully. I never said rates were going to double overnight, that was Jeff316. He didn’t read carefully either as I don’t know where he got the $600,000 mortgage from. I simply stated how much extra it would cost you at 6%. I don’t expect it to double over night but it can happen over the course of a few years. It has been stated that rates tend to go up during recessions. Guess what? We are technically in a recession now. I don’t get your logic that because in 89 inflation was 5% it can’t happen now.

          I’m not sensationalizing anything. I simply presented a negative scenario which can certainly happen. It’s always good to crash test your finances. You seem to be good at digging up stats which is great, however, some of this data is outdated. I’m aware that people have to qualify for variable rates at the posted fixed rates but again, people are taking on the maximum mortgage they can for which they barely qualify. As soon as rates go a bit higher than the benchmark rate they will start getting into trouble. The banchmark is the posted 5 year fixed rate whih does give you some cushion but it’s not that much higher. It simply kicks the can further down the road to use a popular phrase.

          People may have been buying expensive houses for years but even at 271K you are paying an extra $500 a month if rates went to 6%. But look at the data Appraiser posted. The average house price in July was $610,000 which is higher than my example with 10% down that’s a $550,000 mortgage. That is inline with what I’m seeing out there and yes you can get more than five times your income in a mortgage. I met with a couple recently with a single income of just under $100,000 with a $530,000 mortgage and saw a single guy with over $100,000 income qualify for a $600,000 mortgage. Both from the big five banks.

          Since these houses are selling in record numbers there are a significant number of extremely high mortgages out there.

          I did not say these people will sell becuase of falling house pricess. I said the opposite, house prices might fall because these people can no longer hold on to them due to the extra $900 cost and are forced to sell. That is what will, I think, dirve down house prices. Look at the US house prices in 2007. Prices were reasonable up to about a year prior to the crash when they went parabolic and look what ahappend. Every one who bought prior to 2006 whould have been fine, yet somehow those “few” that bought in 2007 managed to cause a crash. Yes I realize there was fraud involved with people getting subprime rates with no income and when rates moved a little bit they lost their homes. I know there is no fraud in Canada but if rates were to go up significantly in a short period of time (i.e. 3-4 years) many people may lose their homes here too.

          Finally, in my example even if it took 5 years for rates to bouble people will be significantly affected because on a large mortgage like that you only pay $75,000 towards the principle which means you will have still have huge $425,000 mortgage left. Do you think that people would only be screwed if rates doubled overnight but not if it doubled in five years?

          Again, I’m not predicting that rates will double in five years, I’m just saying they could and would you be able to sleep at night with that risk.

          1. Kyle says:

            @condodweller

            Here are some more mortgage stats from Nov 2014 http://www.ratehub.ca/docs/mortgage-reports/caamp-annual-2014.pdf:
            1. Average interest rate for home owners with mortgages = 3.24%
            2. Average contracted period of mortgages for homes purchased in 2013 and 2014 is 21.2 years, with expected final payment in 17 years
            3. 41.4% are mortgage free
            4. Among homeowners who have mortgages (but not HELOCs), on average their home
            equity represents 49% of the value of the homes.
            5. For owners with both mortgages and HELOCs, the equity ratio is 64%.
            6. On average, first-time buyers make down-payments equal to 21% of the price of their
            homes.

            All the empirical evidence out there indicates that Canadian mortgage holders and lenders are very conservative and responsible. And the percentage of borrowers like you describe is vanishingly small. No offense but i will take the empirical evidence over your two anecdotal instances of hearsay.

            “The average house price in July was $610,000 which is higher than my example with 10% down that’s a $550,000 mortgage.”
            Of those homeowners making up that 610K average who have a mortgage, Stats 4,5&6 indicate that 10% downers would be few and far between.

            “It has been stated that rates tend to go up during recessions. Guess what? We are technically in a recession now. I don’t get your logic that because in 89 inflation was 5% it can’t happen now”
            What you wrote is just patently wrong. We are in a technical recession, and current inflation is below the 2% target, that is why the Bank of Canada just cut rates. Rates do not “tend to go up during recessions”. Developed countries all currently have very low inflation rates, many are trying to fight deflation by using negative interest rates. How exactly do you foresee us going from less than 2% to 5% inflation?

            Can people absorb higher payments? Again i look at the stats and see that most people do not borrow anything close to their max, 1/3 of people are making prepayments, many have ams less than 25 years. So yes, i think the vast majority have capacity to absorb increased payments. Especially if rates increase over an extended period of time, people will adjust their lifestyles. I grew up in a family that went through many lean years. During my families lean years we didn’t have a lot of fat to trim before hitting bone, so we had to make really hard decisions. From my experience i know when the decision between keeping the house or making a sacrifice comes, people can and will learn to live with a lot less than they have now. And in today’s society there is a lot of fat that can be cut that never existed in my day. If push came to shove most homeowners can and will find the savings. People will cut or eliminate RRSP, TFSA and RESP contributions, they will cut back or forego vacations, they will spend less on clothes, they will go out less, they will stop spending $5/day on coffee, they will reduce or eliminate gym memberships, mani/pedis, cable, internet and phone bills, they will drive cars longer and buy cheaper ones, they will pack lunches, they will rent out part of their homes. This notion that $500-$1000 more a month will force people to sell their house is simply not realistic.

            “would you be able to sleep at night with that risk.”
            If you’re talking about the risk to society if rates rise, when i look at the lifestyles most homeowners have, i am not that concerned. I see lots of excess that IMO people can and will cut if push ever really came to shove, i’ll get concerned when i see: Canada Goose jackets stop selling like hot cakes, people giving up their smart phones, when the number of Kias outnumber BMWs. If you’re talking about the risk to me personally and my own situation, i make extra mortgage payments on my properties that i can cancel anytime and have A LOT of fat that i can trim without ever feeling a thing, so no i am not concerned at all for my own sake.

          2. Chroscklh says:

            Please be to understand that history not guide here. Economy guide here. Terminal rate (i.e. long term int rate) the much lower ever before. No inflation in system. Economy in technical recession. Bank of Canada LOWER the interest. Is no going to go up unless economic activity/inflate pick-up. If so, guess what? Income be go up too. But guess what too – 25-50 bp increase in rate have BIG effect off low base. Not like in ’89, must increase rate 1% at time. So Bank raise rate 2-3 time at 25 bps each, economy choke. Inflate abated. BoC on hold. Trust Chroscklh, interest rate no go 5-6% for LONG time. If so, its cuz Oil at $200.00, Alberta rich again, Ontario booming, selling snow to California at $300/ton – something like this. Scenario more likely is price increases in real estates slow, rates move up modest, incomes eventually increase so that price/income ratio look more inline. Yes, last guy who buy 1-bed CitiPlace condo for $685k is putz cuz it take him 8 yr make his money back (he want sell 3 yr at $900k for to buy house was his ‘forecast’), but that guy always putz. I forgot question. Is better rent or own? Depend on personal pref, spending habit, ‘pride of ownership’ -but recent history confirm leverage invest in home has faired better than renting person put extra $300.00/mth in market along with $30k he use as downpayment. Better discussion is how about now fwd? How likely is going to change?

  12. Jason H says:

    Okay. Didn’t realize it. Thanks for clarifying.

  13. Jason H says:

    Unless I’m missing something this blog is deceitful on rent vs buy in your example.

    Condo fees aren’t in there.

    1. BillyO says:

      Jason, nothing deceitful in the example. Maintenance fees ($316.41 in the example) = condo fees. David also added hydro (electricity), which is not included in condo fees for buildings built after 2007 of $50 which is about right as well

  14. condodweller says:

    I started writing this post before potato’s excellent post and when I came back there was no point in continuing with my examples. I will continue after example 1. below….

    There have been some excellent points raised here. There are so many moving parts to this question that it is extremely difficult to come up with a single solution/recommendation that fits all.

    When I deal with people on this subject I always look at their current/past BEHAVIOUR to determine what’s most suitable for them. Buying a home is not only a forced savings strategy, it is also a LEVERAGED investment strategy which nobody touched on yet. Another key piece is that the principal vs interest amounts above are going to reverse over time which means over the years a much larger amount is going towards capital and eventually next to nothing is going to interest. In order to do a realistic calculation, one has to do multiple scenarios in terms of how long he/she is going to own the home. Let’s take a look at a few examples:

    1. For an immigrant family who keeps expenses to a minimum, puts everything they can toward the mortgage, who is not a knowledgeable investor, and plans to stay in the long term buying is absolutely the right strategy.

    Potato or should I call you Matthew? I really like your long term view on this which I find most people miss. I searched and tried many rent vs. own calculators but most are very basic and don’t project long term changes in interest/inflation/taxes etc. which made me want to do my own spreadsheet, however, there is no need to reinvent the wheel, I’m going to play around with yours and see how my scenarios work out.

    I would consider an even longer time horizon though I suspect your spreadsheet will swing even further towards renting if you double your time horizon. I know of a person who bought a house in the 1950s for $18,000.00 yes eighteen thousand who still lives there and the house is worth over a million. When I first heard about the rent vs own debate at first I dismissed it out of hand thinking owning must be better however I kept an open mind and the more I thought about it the more I leaned toward renting having actual merit. The problem is that, as you state, most people will not look at basics never mind do critical analysis. Another issue is that I think very few people have the discipline to invest the down payment and invest the difference consistently over long term for renting to realize the gain. I certainly don’t know of and haven’t heard of anyone who is doing this. Darren above is a first however even he started owning and sold his place to invest. I was actually considering doing the same at about the same time frame as I had to move and thought of renting and investing the difference however I didn’t see an immediate crash coming thus I decided against it. The idea of having idle capital sitting in my residence only appreciating near inflation bothers me. Due to this I have a working theory, and this would be interesting to incorporate into your calculations, which is the best of both worlds. Own, but invest the equity in your home. This can be done through a HELOC which will give you up to 80% loan less the mortgage on the value of your home. For someone who has no mortgage can take $800,000 on a home worth a million and invest it say at your 7% return and would pay about 3.5% interest plus capital gains. Dividends could cover most of your cost and the capital gains would be gravy. Obviously sometimes this would be more beneficial than others but one can choose carefully when to enter the market for optimal returns. I mean if you did this during the crash in 2008 and say you invested in the Canadian banks they were paying 8% dividend at the time and they have doubled in value since the bottom. There were some stocks that would pay 20-40% dividend today if you bought them at the bottom. If I had put my home equity into the one stock that would pay 40% today it would pay me well over $100,000 annually! I could have retired by now.

    This is not feasible for a new buyer with 10% down but as people build equity they could borrow against it to invest. Another concern is that most people don’t like to move around which they would inevitably have to do from time to time when renting as owners sell their property etc..

    Oh, and finally, a lot of people are renting out their basement apartments to help with the mortgage. I suspect in this situation owning would also come out on top. Of course, this opens up the can of worms do you want someone living in your home.

    It’s now 2 a.m. sorry I if was rambling and any of the above doesn’t make sense 🙂

  15. Potato says:

    Housing bear reporting for duty. First off, don’t forget that there are tools for this kind of comparison.

    For the owning side, don’t forget that there are maintenance costs beyond the condo fee (interior costs like painting, replacing appliances, etc.). They won’t be game-changing, but they’re there. Your tax estimate also looks a little low (only going to be ~$40/mo difference). Likewise, investing the downpayment and cashflow differences on the renting side will help the comparison.

    A big factor is the price-to-rent — you actually found a really cheap example pair at just 187X. Most condos that I’ve looked at have in the city been around/over 225X, and my place in North York has a price-to-rent of well over 325X. Indeed, spot checking for myself for a few buildings on East Liberty St. I see two matched pairs at $370k/1800 (205X), another at $330k/1500 (220X) — all with higher condo fees than your example.

    Of course, the interest rate expectation is also a huge factor. Even adjusting the forgotten factors (internal maintenance, opportunity cost/investing, plus higher property tax and condo fees) it’s a coin toss at today’s 2.75% for a 205-220X price-to-rent for a ~5 year holding period. If you can find a place at just 187X price-to-rent, buying is favoured.

    But for the buyer of the future, who may be facing rates of 4% (gasp) when making their decision, it would take a price drop from $370k to ~$320k for a place with the same rent to make sense buying. At 5.99%, price-to-rent would have to come down to ~150X (that $370k condo becomes $260k) to make buying worth it.

    And that’s been one part of the whole bubble trouble: bears would say “you’d have to be nuts to buy at that price, it’s like you expect to be paying 3.5% forever!” and then rates would drop to 3.5%. Then prices go up, and we’d say “you’d have to be nuts to buy at that price, it’s like you’re pricing in a mortgage of 3%!” and rates would go down again and prices up, each time the market seeming to accept the new rock-bottom rates as a permanent feature and price them in.

    But even then, there’s a limit to the madness: that initial price-to-rent plays a big role in the comparison. At today’s rates, those places we’ve dug up in Liberty Village look downright reasonable. Closer to Yonge price-to-rent may be more like 240X — factoring in not only today’s low rates, but also some healthy appreciation or further rate cuts at renewal. For the person who paid what they did down the street recently, instead of taking the house that was for rent just a few hundred meters away (over 325X price-to-rent), they could have received an interest-free loan from the bank (of mom and dad) and still been better off renting. The prices there make zero sense. We have to figure that these buyers are not good at math, buying for non-financial reasons (cultural, emotional), factoring in massive rent inflation, speculating on continued future price increases, or some combination of all of the above.

    And all those non-math/non-financial factors do matter. Pretty much no one else in the city of millions has put together a spreadsheet and rational framework to look at renting vs. buying like I have; very few even use such a tool before deciding to buy (rumours to the contrary, I do have friends and they do buy houses and the reasons are always emotional, most have not even looked up what their rental options are before buying; many of them will unfortunately be hurt quite badly if rates recover to even the 5 or 6% range, which they fully believe will never happen because they “locked in” at 3% or whatever — even basic concepts like term vs amortization fly over most buyers’ heads).

    And of course to end off the bear rant we come back around to the old “catalyst” discussion. Some people have said things along the lines of “so what, it’ll never correct until rates go up” to analyses like these showing that RE is overvalued in TO. Which, sure — I don’t think it’s a necessary condition, but I’m not too stuck on any time frames or particular catalysts for corrections here, I’m mostly worried about avoiding blow-up risk — but let’s say that is what will do it (and the only thing that will do it), and the market will keep holding on or inflating as long as rates stay low. But then once and if they do creep back up, it’s look out below time — rates moving back up to 4% knock $50k off the value of that Liberty Village condo, which is like 2.5 years of paying rent, or more worryingly, a minimum holding of 3 years before being above water and able to sell and move on if needed. And that’s assuming we don’t get the knock-on effects of a deflation (like risk premiums). Rates moving back up to those 5-6% pre-crisis levels would be catastrophic. In short, I don’t see how the argument “it won’t correct until rates rise” is of any comfort. So what if it takes 3, 5, 10 years… if there’s a decent chance of that happening in the middle term, I don’t want to touch RE.

    The price may make sense at today’s rates and be more-or-less breakeven with rent, but why take that kind of risk for more-or-less breakeven?

    1. @ Potato

      Where have you been lately??

      It’s this kind of analysis that we’ve been sorely missing!

      And excellent use of BOLD. I didn’t know we had that function…

      You should link to your e-book. I would do it, but believe it or not, I have no idea how to create a hyperlink in this text box. 🙁

      1. Potato says:

        Thanks for the invitation, David!

        The book is completely unrelated to my views on real estate, it’s all about how regular people can become passive index investors. Full of step-by-step instructions and lessons on creating good processes from my time working in the hospital.

        The Value of Simple: A Practical Guide to Taking the Complexity Out of Investing

        Links there will lead you to where you can buy it — and it’s more than just an e-book, print copies are available in Chapters (~15 stores around the GTA) and the Toronto Public Library.

        As for links/bold — most blogging platforms allow a few basic HTML tags (bold, italics, links, underline, and in some cases blockquote) in comments. So just encase your tags in angle brackets (greater than/less than signs), write some words, close the tags with a slash: < b > words words words < /b >

        [And if that renders as < [& lt ;] instead of the angle bracket, it’s because I was trying another HTML trick where special characters can be called by ampersand code semicolon, so you can talk about HTML tags without creating an active one.]

    2. jeff316 says:

      “We have to figure that these buyers are not good at math, buying for non-financial reasons (cultural, emotional), factoring in massive rent inflation, speculating on continued future price increases, or some combination of all of the above….And all those non-math/non-financial factors do matter. Pretty much no one else in the city of millions has put together a spreadsheet and rational framework to look at renting vs. buying like I have; very few even use such a tool before deciding to buy (rumours to the contrary, I do have friends and they do buy houses and the reasons are always emotional, most have not even looked up what their rental options are before buying; many of them will unfortunately be hurt quite badly if rates recover to even the 5 or 6% range, which they fully believe will never happen because they “locked in” at 3% or whatever — even basic concepts like term vs amortization fly over most buyers’ heads). ”

      There are some good points in that post, I think this is the key point in all of that quoted above.

      There are great reasons for renting, but the quote is really the crux of it.

      “I know more, I’m smarter, I do more home work, and no one is like me. The buyers are all making emotional purchases. They all think rates will be low for ever. Yes, after all that work my renting math doesn’t really add up but it might add up in the future.”

      Which is the most non-rational, self-justifying, comparative and *emotional* argument ever.

      1. jeff316 says:

        Just to add, I didn’t mean that response to be snarky. If it comes across that way, my apologies. More just a highlight that renters are just as emotional as the “emotional” buyers they snicker about.

    3. Appraiser says:

      @Potato:

      The future will always be unpredictable. A fact that real estate bears have learned all too well over the past decade. Some people find that frightening, which is why some people live perpetually in fear.

  16. HappyTrees says:

    Since when is a rental market with less than a 2% vacancy rate sluggish!??!

    1. Joe Q. says:

      The 2% number is deceiving. It comes from the CMHC, which takes a very limited view of the rental market. By most accounts from people in the field (realtors, property managers, etc.) rents are pretty stagnant.

      1. Kyle says:

        In the condo rental market the avg monthly rents only look stagnant because the avg unit size is dropping. On a per sq ft basis, rents have increased 4.6% YoY and rental activity has increased 22% YoY

        http://news.buzzbuzzhome.com/2015/07/urbanation-condo-rentals-gta.html

  17. Darren says:

    I think it’s interesting David that you mentioned “what many personal finance experts and newspaper columnists choose to ignore” yet you ignored the other side of that coin.
    What about opportunity cost if the person invests the down payment instead and makes regular contributions to a portfolio? I appreciate that many people don’t have the discipline, patience or perhaps the courage to invest, but those that do can reap big rewards.

    I sold my place just over 3 years ago and I’ve been renting since. I took my proceeds and invested pretty much all of it. It was the best financial move I’ve ever made. While there is a particular area I would have liked to purchase a bungalow in if the prices were reasonable I’m no longer interested in that.

    About 2 or 3 months ago I asked David for the sales data in my old building to see what units like mine were selling for. I believe the best case scenario was that I would have got about an extra $5000 if I were to sell then instead of 3 years ago. My investments have made me a lot more than $5000. A LOT more.

    I know what my landlord pays in condo fees and taxes. It’s just under half of what my rent is. That’s money thrown away regardless if I own or rent. I make more than enough money in dividends to cover the rest. I effectively make money by renting. On top of that I have levels of disposable income I could only dream about previously. I’m not a big spender, but I am a big traveller. I’ve been on several amazing trips all around the globe, most of which I most definitely would not have been able to afford to go on if I were still an owner.

    I had opposition from friends and family to me becoming a renter, especially my dad. But he’s seen what I’ve done and now he’s a believer too.

    Not everyone’s situation is the same, but for some people renting is the right choice. For me, owning just doesn’t make sense right now. In fact if I won the lottery tomorrow, I still wouldn’t buy a place. It would be “throwing money away”…

  18. Cool Koshur says:

    Owning a house is “forced saving” in home equity.

    Most of the people don’t stay in their first homes for long. They sell and it costs lot of $$$ in real estate and moving costs

    So renting makes perfect sense if you are planning to move in next few years for whatever reason

  19. amy says:

    i have no idea how people move back in with their parents. When I was pretty broke my parents did help me out some. But I lived with roomates, was employed…i think my parents always felt they would rather pay part of my rent than have me move back home.. they called that a depressing scenario. But even that had limits..if i had asked for them to pay rent on one bed condo in any desirable neighbourhood the answer would be no…basement apartments and roomates were my reality. living with 2 or 3 other people is definitely a….growing experience lol…and also a ton of fun at times

    1. AndrewB says:

      I lived with my mother going through University. When I was done school I paid my debts living at home and also helped her with the bills. Saved my down payment with my partner and bought a condo. To each their own. Student debt is higher these days and entry level jobs are scarce. This is why students go back to live at home.

  20. Joe Q. says:

    “The kids finishing university at 21-years-old used to go back and live at home for 2-3 years, then rent for 2-3 years, then buy their first place at 26-27 years old.”

    I think this is a generational thing as well. I’m not much older than David, but I knew very few people who went back to live with their parents after university. They would rent (with room-mates generally) until they were married or at least very financially secure. Moving back in with the folks when you yourself were gainfully employed was considered infantilizing, a “sign of weakness”, as it were.

    Things have changed — now it is common, even expected, especially in some cultural communities and perhaps even more especially for women, to move back into one’s parents’ home after university and to stay there until one becomes a home-owner. It’s a big cultural shift.

    Writing this comment makes me feel old. Now get off my lawn!

    1. jeff316 says:

      It was a few years back, but I knew a guy who lived at home through uni, and stayed home til he got married at 32. And he paid for his house in cash. Not for me but good job.

      1. Joe Q. says:

        I think it’s still very possible to do that in some circumstances, perhaps not in Toronto though (unless you have a high-paying job). I agree “good job” in the financial department but one wonders what your acquaintance gave up in order to achieve his goal.

        1. jeff316 says:

          Oh totally. I lived at home all through uni, so I have some sense of the cost but I couldn’t have done it past 30. He often dated mangiacake girls that had their own places. Not sure if that was on purpose or not!

  21. Fro Jo says:

    This site has become an echo chamber lately, so a piece like this that reflects a bigger picture really stands out.

    I’m glad you started off with the interest rates as the leading factor. The BoC cut the rate to 0.5% this morning, with speculation about the pros and cons running in the press for weeks beforehand. That’s great for those whose interest is aligned with rising RE prices.

    It’s easy to chide those who sold in 2009. But RE gurus on this site and elsewhere play down that owners are lucky to be living one of the longest periods of global near-zero rates and quantitative easing, a state of affairs that nobody could have been predicted (or can continue to be predicted) with any comfort.

    Anyway good work, David.

    1. @ Fro Jo

      An echo chamber? Never heard that one before. I need to write more about politics – that’s when my critics REALLY come out! Or maybe more blogs about people who want to see rentals on Christmas Eve? Remember the flak I took for that?

      Yeah to be honest, I came into this blog looking to highlight the numbers, and talk about how much cheaper it is to rent, and THEN provide the reasons why people buy.

      But the numbers don’t really make a sound case for renting! In that example above, it’s less than $100 difference between buying and renting the same unit, and the LTT for a first-time buyer is a pittance.

      I’d like to hear from Rob Carrick & Ben Rabidoux. Maybe I’m missing something.

      1. Mike says:

        David,

        I use to read you blog all the time, then I noticed what you were saying was the opposite of how you actually ran your business.

        Here’s the deal, you present at house purchase and I’ll present the same as a rental (I will use MLS to find the rental even though listings for rentals there are higher than on other sources).

        Give me area of purchase

        leverage used (how much and at what rate)

        Price paid

        bedrooms

        other selling features

        Describe the following characteristics in a follow up blog and I will argue the rental counterpoint. I will use historic numbers for rates of return, we can discuss sources if what I use don’t make you happy.

        I Toronto Realty Blog Accept The Challenge: _____

        I Toronto Realty Blog Decline The Challenge: _____

        Let me know.

  22. Mike says:

    The Canadian economy has been kept artificially high by low interest rates, spurring people to make large purchase on credit and buy houses. This created work for Canadians keeping employment levels in check.

    The two largest drivers in the the inflation rate calculation are housing cost and energy. Energy has tanked, with it our dollar. It now cost you more money to buy an orange (among other things) than it did last year. It would be a great time for Canada to sell goods to the rest of the world but most manufacturing has shifted offshore. Due to this we are now in a deflationary environment that leads to a recession.

    The Bank of Canada has cut it’s rate again to 0.5%. This helps real estate, particularly with foreign investors who see advantages to the low interest rate and the low dollar. But….

    China has had a massive pull back in its markets as such the Government has put massive restrictions on the flow of capital, particularly outside the country. A guy might have been a Chinese billionaire a few weeks ago but now he’s only worth a few hundred million and locked into his position as they’re no longer allowed to sell. This impacts other nations which rely on the Chinese to buy their products such as Australia and even Canada.

    Russian investors are having a tough time as trade embargo’s have made it difficult for them to get money out of the country and even tougher for them to put it in a bank based in a Western nation.

    The Middle East has also seen its share of problems, low oil prices are hurting those nations and the fact that embargo’s on Iran are being lifted mean that the price is about to go lower.

    This makes things dicey for foreign investors looking to participate in the Canadian real estate market.

    Oil prices won’t be going up anytime soon so that means Canada will fall deeper and deeper into the recession. China not buying our minerals and lumber is going to start hurting other provinces and Ontario just got it’s rating cut. Canada has used it’s last tool in it’s tool box to fight off this recession. Most markets have been historically cyclical pulling back about every eight years. Cutting rates has manipulated that historic cycle and now we’re going to pay for it.

    It’s a good time to be a renter.

    1. jeff316 says:

      The rate cut doesn’t help much as everyday buyers will only get to see a 0.10 reduction to variable rates. Banks keep the change.

      What I’ve never understood is the artificiality comment. The Bank of Canada has been setting interest rates for 60 years. If so, it’s been artificial the whole time, both when low and high.

      1. Mike says:

        No, in previous years BoC would let recession happen but recessions don’t get current governments re-elected. Stephan Dion would have been our Prime Minister had he just allowed the World economy to take effect on Canada. Instead he forced an election and got creamed.

        Currently Canada has a high debt rating, so offering low rates on high secured debt is a massive positive. Think of it as Holt Renfrew having a massive sale on Hermes scarfs. HR can always lower prices if they need to but the can only raise them if the market is there. If everyone says, “I want a Hermes scarf at $50” then that forces the price as long as HR wants to sell scarfs. If they have a massive inventory of scarves you might find a deal. If they don’t own any of the scarves and need to place a new order you might be screwed. RE is the same thing.

        1. jeff316 says:

          Stéphane Dion is not the president of the Bank of Canada and doesn’t set interest rates.

          The Bank of Canada has an established role in setting interest rates – “high”,”medium” and “artificial” – off and on for 60 years.

          Real estate and/or low rates on secured debt (it’s not clear which you are comparing) are completely not at all same thing as pricing as the pricing dynamics of a Hermes scarf of varying supply levels.

          You probably would have done better to not respond at all.

  23. Kyle says:

    “Well let’s not forget that out of that $1,355.14 monthly mortgage payment, over $700 is coming back to you in the form of principal repayment, and whether it’s cash in your pocket or a lower mortgage – it’s still equity.

    Perhaps this is what many personal finance experts and newspaper columnists choose to ignore?”

    They also choose to ignore two other important facts:

    1. That both rent and house prices historically have risen far faster than inflation. Meaning that you get a positive real return with real estate and a negative real return by renting. This partially explains why landlords tend to be very wealthy, while renters tend not to be.

    2. If you are a twenty something year old, you will need a roof over your head for the next 65-80 years, if you buy that asset with a mortgage you pay a relatively fixed amount each month and own it free and clear in under 25 years. If you rent however, you will continue paying every month with annual increases until you die or get evicted.

    1. Marina says:

      There is also a behavioral factor : most people I know have a very hard time saving, so the only way they accumulate wealth is in their company matched RRSPs and in their home equity.
      If they rented, they would end up with nothing.

      I find that many financial experts make assumptions that few people would follow. They are sensible assumptions, in the sense that they would give maximum returns, but that’s not how most people behave.

      So maybe renters end up poorer because they don’t couple renting with a sound financial strategy. But that’s something you have to account for when giving financial advice. I’d almost always advise to buy.

      1. Kyle says:

        This is bang on, “So maybe renters end up poorer because they don’t couple renting with a sound financial strategy.”

        Buying does have a forced saving aspect to it, which makes it much easier to be disciplined. I don’t doubt there are some renters out there that rent because it is “cheaper” while saving and investing a large portion of their income, but i think that really is a miniscule fraction. I also think that an even smaller fraction of them would have been more successful with that strategy than those who have just bought real estate in Toronto with 10% down. Especially when you factor in the stress of market volatility, that you’ll have to pay some tax on your incomes and gains and that the rented accommodations tend to be inferior dwelling than what someone would have bought.

      2. Jimbo says:

        Let’s say I’m retiring next week and own my $800k home free and clear with a company matched rrsp after 30 years. Assume it isn’t enough to pay $1200 rent plus utilities etc for the next 10 years.. What does that person do? What do they have to live on? It seems like they still have nothing. $800k portfolio would probably go further IMO

    2. AndrewB says:

      What about the last opportunity costs of the difference in rent versus owning? Say those who but your run of the mill condos, 300k example. Carrying costs probably reach about 2k monthly. One could easily find a 1 bed apt at 1500, invest the 500+ difference monthly and see some decent returns. This is especially true when basic condos sit on the market and are probably bring resold in 3-5 years anyways.

      1. Kyle says:

        Unless one assumes financial markets massively outperforms housing markets in perpetuity, owning still comes out ahead in your example.

        I know this is simplified, but it should still give a pretty good sense of the return.
        A 300K condo that appreciates even at a very conservative 3% per year, will be worth 348K at the end of five years (i.e. a 48K gain). Investing $6K per year into a portfolio that earns even a generous 7% per year will be worth 44K at the end of 5 years. So owning is ahead by 4K after 5 years.

        In reality though that $1500/month in rent would be rising much faster than the $2000/month carrying cost of owning, and eventually the monthly rent becomes more expensive than the carrying cost of owning.

        1. Joe Q. says:

          Kyle — for a fair comparison, shouldn’t your example take mortgage interest into account when calculating the $ gain? Presumably the buyer has a mortgage and is not paying cash.

          1. Kyle says:

            Using AndrewB’s original example, he simply used an all in $2000 per month carrying cost (the mortgage interest would be baked into that total number), so in actuality i’m understating the return to owning, since i have left off the equity from principal being paid down.

        2. Jimbo says:

          I believe renting is only better for a person or family who are disaplined enough to invest the excess. It also offers mobility if you know you have to move in less than 5-7 years.
          These simple calculations never capture the whole picture for individuals.
          Given the examples provided yearly land tax has not been added to the mortgage costs and should be considered as an interest cost or a form of rent you don’t get back.
          The cost of repairs can not really be averaged but you must assume that you will include these costs each year you own the house.
          In the end I think it comes down to personal preference and the ability to stick with the plan once you commit.
          Is there a source available online that shows the median and average price appreciation from year to year that goes back further than 1980?

          1. Kyle says:

            Totally agree with this. Big deciding factors to rent are how long you may or may not be staying, whether you are disciplined enough to save the difference, and plain old personal preferences.

            Historic Toronto prices can be found here:
            http://www.torontorealestateboard.com/market_news/market_watch/historic_stats/pdf/Historic_1506.pdf

  24. Marina says:

    The enormous rise in condo construction makes a huge difference too, as an enabler. 20 years ago, the norm was to save then buy a house. Not that there were no condos, it just wasn’t THE thing to do.
    Now almost everyone I know buys a condo first, sells after 3-4 years and then buys a house. And I have to wonder how many of them just buy because that’s how things are done, much like living in a cockroach infested hole was how it was done 20 years ago.

  25. Appraiser says:

    Seventy per cent of Canadians are currently homeowners. Statistics Canada’s latest data indicates that 90% of households with annual income in excess of $100,000 are home owners.

    Clearly there are only two types of people in the world, homeowners and those that want to be homeowners.

    1. Paully says:

      Actually, there are only 10 types of people in the world. Those who understand binary, and those who don’t.

  26. jeff316 says:

    David you’ve officially gotten old. You used the term “learn the value of a dollar”. Next you’ll be waxing on about how they don’t make things they way they used to, and how the kids music these days is terrible. 🙂

    6) Culture

    In some cultures renting is viewed as a wasteful, short-term, last-resort option that hinders the development of equity. Renting is seen as a stop-gap option – for those newly arrived to a new city – and in these culture there experience with renting at best not-positive, at worst exploitative. A lot of people from cultures newly arrived (and some not so newly arrived) left their places of origins to avoid class-restricting practices like renting.

    1. Kyle says:

      This is a really good point, and there is a lot of validity to the mindset you describe. As an immigrant, who grew up in a poor, working class immigrant household and neighbourhood, i’ve seen a lot of people come here with nothing and build up wealth by working hard, saving and buying real estate. For a lot of immigrants many of whom have limited income earning potential, real estate is the great equalizer. Building wealth doesn’t require excellent English, a professional degree, a designation or specific work experience, just a lot of hard work, perseverance and time.

      My butcher is a perfect example of this, decades ago he arrived in Toronto and worked as a butcher, and eventually saved enough to buy the butcher shop, then saved enough to buy the building, and over time he bought the buildings on either side and a few others. No one would know by looking at him in his white apron, that he owns a couple hundred feet of commercial property on Queen Street. I contrast this to the twenty something, wearing $200 Nudie jeans, sipping a $5 latte while tweeting from their $800 i-phone about how epically unfair it is that they #donthave1million to buy a detached house in a big thriving metropolis.

      1. ScottyP says:

        What are these Nudie jeans of which you speak, and where can I buy a pair?

    2. Joe Q. says:

      Jeff’s point is important — the cultural issue is a huge one. The concept of home-ownership as a top priority (higher on the priority list than education, professional achievement, personal independence, etc.) is ingrained very deeply in some cultural communities. I’m sure many of us know of people who gave up on their education or personal independence so that they could save to buy real estate.

      In many cases, I’m sure this stems from immigrant communities’ negative experiences with renting in “the old country”, as mentioned. In other cases it likely has more to do with an “inherited” approach to home ownership, especially for immigrants from countries where home ownership is more common than it is in Canada (thinking specifically of southern and eastern Europe).

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