# Rent vs Buy Argument and justification to enter the market now



## stryder1587 (Feb 27, 2017)

For those that say rent, please enlighten me about the merits of this strategy. 
My understanding is, with all the money not spent towards a down payment, you invest in something safe with a fairly long term focus (until you're ready to take that money out to buy a home) and essentially buy being able to diversify your portfolio and generate steady returns from the market, it was possible to make more money from your holdings than parking everything into mortgage. Also there are the tidbits about less hassle renting than home ownership costs, which we don't need to delve into. 

In this market where real estate is hot, does it make sense to enter and hope for better returns? I know the counterpoint is, well what happens when the crash comes or interest rates rise back to the mean of 8%. I'm trying to justify whether it's really safe to enter the market now. My thinking is that, some sort of a market correction will eventually come, but I don't think that's going to be this year, it might be 2-5 years from now, but I don't think it's going to be a crash. If I'm in the type of financial situation where I can weather the storm in the case of a crash, then in the long term, the prices will eventually head back up anyway just as the stock market always does after a crash. What I'm losing out on is not being able to enter when the prices are low, but at the same time, interest rates will likely be much higher to have warranted that crash which makes homes less affordable anyway. 

Also, lets say that crash comes in 2 years, but during those 2 years, real estate prices have already gone up another 20% (could be more seeing as last year it went up 22% alone), and the crash hits the market by -30%. It would be similar to buying today at a 10% discount (20%-30%), but at higher interest rates. It won't be a wash but it won't be like firesale prices anyway. So that would be my downside. The upside is if this market still keeps going up, at least I entered as soon as I could and locked in at low interest rates for 5 years. 

I said it it another thread, but I actually think the Toronto market still has room to grow. Looking at the global market, Vancouver and Toronto are still very affordable compared to other major cities. While you can make the argument Toronto is no New York City, Hong Kong, Tokyo or Seoul, it's very difficult for foreign Chinese buyers to immigrate into this markets (especially the US right now), where as it's significantly easier to get into Canada. And now that the foreign buyer tax has cooled Vancouver down, all the in flow is going to Toronto. So, sure the domestic market in Toronto is being priced out of the market due to the extremely high price/income ratio, but that isn't stopping all the foreigners with money. 

Based on this article, chart 10 supports the foreign money driving up housing prices, the lines are highly correlated. And then chart 11, household debt not rising (people not leveraging up to take mortgages) clearly indicates housing prices are being driven up by foreigners that don't care what the interest rates are, because they don't need mortgages to afford homes, and they don't care about any impending crash because our markets are still cheap compared to theirs and way more desirable to live in. 

What do you guys think?


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## stryder1587 (Feb 27, 2017)

Forget to link referenced article:
I can't link urls, but it's
http
news.buzzbuzzhome.com/2017/02/13-charts-canadian-real-estate-2017
html

or google 13 charts to help you make sense of Canadian real estate craziness in 2017
from buzzbuzzhome


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## Just a Guy (Mar 27, 2012)

I think it all depends on the individual. For some home ownership is more profitable than renting, for others the reverse is true. This holds for any time period. 

Now, if you want to talk in generalities, and an ideal world, home ownership is driven by different market forces than rent. So you can't really compare objectively. However, in most situations right now renting generally gets you more for less. If you then invest the difference and further earn money on the savings (which the majority of people will never do) the math says you'll be further ahead most of the time, especially when you factor in the true costs of home ownership (which most people don't). 

Does that mean I'm against home ownership? Not at all. Am I against renting? I'd better not be considering how many rentals I own but, in the end, home ownership is a personal decision. It has different benefits that don't always come down to the best investment. 

Heck, most people never do the best when it comes to investing, there are tradeoffs all the time and no one has a crystal ball.

A good argument can be made for either choice, but the math says a home is rarely the best investment you can make from a strictly financial decision.


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## fcyloh82 (Dec 2, 2013)

Hey styder, I'm also in the same situation - continue renting a condo or purchase a condo/"house". 


I think it boils down to a personal preference: How much are you willing to pay for house ownership? 

1. Renting a condo works well if you're not sure if you want to settle in one place. You lose the sense of ownership and may face instability should the landlord kick you out.
2. Purchasing a house affords the benefits of ownership, but it's a little harder to move. Do note that the benefit of house ownership is somewhat costly vs. renting.


I've decided to continue to rent until we've saved up significantly more to protect against loss of job scenarios (we make good money; clear 200+). The real estate market in Toronto is getting more frenzied, and it's a market I do not want to participate in since it's not friendly to first-time buyers like myself. I wouldn't mind waiting for a bit longer, and hopefully, the market would have calmed (not necessarily looking for a correction) so that I can make a better buying decision without the need to enter intense bidding wars where emotions can lead to bad financial decisions.


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## sags (May 15, 2010)

It is too late to enter the housing bubbles now. The time to do that was a few years ago.


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## DollaWine (Aug 4, 2015)

sags said:


> It is too late to enter the housing bubbles now. The time to do that was a few years ago.


Agreed.

I plan on renting until the storm settles. Hopefully it works out for the better - by then I should have 15-20% down saved, rather than rushing to barely squeeze in with 5% if I bought this year. Besides, another question you need to ask yourself OP - how long will you be in the property? 2 years? 3? 5? Probably not worth it to rent - you'll probably break even or lose money if you sell in 5-7 years or less. The amount you "threw away" to interest would be colossal in comparison to the amount you built in equity. 

I personally think this rollercoaster is going to hit its peak in ~2 years. A market correction is inevitable, this growth we've been seeing simply isn't sustainable. Stay indoors, hoard your belongings and avoid the storm!


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## naysmitj (Sep 16, 2014)

I would suggest you also look at amortization tables for the mortgage term and rate you can qualify for.
Almost 1/2 of you mortgage payment is potentially going towards repayment of capital.
Compare the interest amount plus taxes against current rent and see what difference is.


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## rebel_ins (Apr 6, 2009)

You need to decide whether you're looking buying a home or an investment property - it is not clear from reading your post.

If you're looking to buy a home, where you will live for at least 10 years, as long as you can afford it I personally don't see an issue.

If you're looking to buy a property with the hope that it will significantly increase in value over the short term (2-5 years), then I would advise caution. There are "charts" that paint a much more different picture than the one presented by your link.

If you look at the fundamentals, a strong argument could be made that the conditions that were in place in the US at the peak of their housing bubble in 2007 have been present in Canada for a while. In the advent of a crash, even if it is likely that prices will eventually head back up, the recovery can take a really long time. The foreign money is not at all guaranteed to flow into Canada indefinitely - China could significantly devalue its currency for example. Also while foreign buyers are a factor, I am highly skeptical that they're the main factor driving up the prices (except maybe for Vancouver), given our home ownership rate and debt-to-income ratio. There is reason to be skeptical about the population growth theory (in Toronto) as well. You also need to take into account that our economy is not nearly as diverse or resilient as say the US - a crash would hit us much harder than it did them.



> And then chart 11, household debt not rising


Are you sure? The household debt is rising, it's just not rising by as much as it used to. I wouldn't necessarily be comforted by that, or take it as an indication that foreigners are largely driving up the prices.


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## sags (May 15, 2010)

Garth Turner has great story on his blog about Sir Isaac Newton. He also has some memorable quotes like this one.........

‘What the wise do in the beginning, fools do in the end’…..Warren Buffet.

Anyone buying in a bubble city now has already missed all that upside and it isn't going to repeat again........just for them.


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## Potato (Apr 3, 2009)

stryder1587 said:


> My understanding is, with all the money not spent towards a down payment, you invest [...] Also there are the tidbits about less hassle renting than home ownership costs, which we don't need to delve into.
> 
> [...]If I'm in the type of financial situation where I can weather the storm in the case of a crash, then in the long term, the prices will eventually head back up anyway just as the stock market always does after a crash.


Those tidbits are a huge part of the story. Here's my rent-vs-buy calcuator and here's a similar one from Preet Banerjee that does a Monte Carlo to look at a range of outcomes. Investing your downpayment (or accounting for the opportunity cost of plowing it into a house) is part of it, but with house prices so high relative to rents, renting is cheaper on an ongoing basis. Right now in North York by my parents, it's insane to buy. A nice 3-4-bedroom house is like $1.5M, and the same place rents for about $3-4k/mo. Both are expensive to be sure, but when you add property tax, maintenance, transaction fees, and insurance into the mix, the purchased house costs you _way _more to live in on a monthly basis than the rental. Like an entire person's after-tax income. You can save and invest that difference and -- even without a housing crash (but an easing of these ridiculous 20%/yr price parabolas) -- you'll come out after a few decades with enough to buy the house and maybe the one next-door, too. Or you can save most of it, still come out financially ahead, and not be house poor, whatever works for you and your situation.

As for weathering the storm... you're almost never forced to sell your ETFs in a market crash. Lots of people are forced to sell their real estate when under-water: they get divorced, they get a job across the country, they have more kids than they expect and just don't fit the space, they lose their jobs for an extended period of time, etc. And real estate crashes are slow, drawn-out things, with lots of leverage: many people start off underwater if they only put a small downpayment down (because now they have to pay transaction fees to get out that exceed their equity). 

And if this is a bubble as some (including myself) think it is, then prices may take a very long time to return to the peak. Toronto prices took what was it, 16? years to recover from the 1989 crash? So there's a lot of risk in buying: risks with impact on your life like risk to your career trajectory (may not be able to leave the house and take a job elsewhere), etc. With renting the risks are inconvenience (having to move earlier than expected) and financial. So I take the rent-and-invest option.


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## CalgaryPotato (Mar 7, 2015)

No one can see the future. All we can do is look at the past. Historically when housing levels have gotten as high compared to income as they have in places like Toronto & Vancouver, it's crashed. If you are perceiving that the worst case scenario is that it goes up 20% and then drops 30% then I don't think you've considered all the scenarios. If in those cities it just dropped down to the level of a mere 5 years ago, it would be a much bigger drop than that.

It's true that buying at a cheaper interest rate, allows you to pay more, hence what has fueled the bubble. But if you buy now and the interest rate rises in a couple of years. Guess what, you need to renew a couple of years after that, and a few more times before you pay off that mortgage. So while it'll be great to have that head start at today's low interest rates, i wouldn't do the math assuming you are keeping that rate for 25 years.


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## Just a Guy (Mar 27, 2012)

When considering the effects of a burst bubble, it's foolish to think that a bigger bubble means a smaller fall. Just because the prices continue to increase each year, doesn't mean the floor gets higher.

When a small balloon bursts compared to a bigger balloon, is the end result any different?

The floor will always be based on what is affordable to people.


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## OptsyEagle (Nov 29, 2009)

It's quite simple. On the very basic level when you rent you have spent that money. When you buy, it goes into your house and 99 times out of a 100, some nice person gives you it all back later when you sell it.

It's a no brainer. Spend your money or have it saved for you.

Now we can make this more complex, but make sure when you add up all your numbers that you don't use the mortgage payment, you only use the interest payment. That is because the principle is usually still sitting as equity that you own in your house. Now initially the interest payment will make up almost all of the mortgage payment but that changes over time. So the next basic thing to think about is that your interest costs on the mortgage will most likely decline over most of your life and your rent will increase over most of your life. Let's not get into whether interest rates will go up or down for now, since that is a speculation and whatever they do it will at least be done on a declining mortgage balance.

Yeah there are other costs like property taxes and maintenance that owners have but I haven't got into the increase in value of housing that owners also have. It usually gives all those expenses back to the owner, upon future sale ,and then some.

It's a no brainer. You don't need a calculator. It just seems like you do because of all the different expenses and concepts. The easiest way to see things is look at the people you know that are 50 to 70. Separate the renters from the owners and look at who has some financial wealth and who can't find a pot to P in. It's the owners that are not crossing their legs and holding their crotches.


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## lightcycle (Mar 24, 2012)

OptsyEagle said:


> When you buy, it goes into your house and 99 times out of a 100, some nice person gives you it all back later when you sell it.


Really? 99 people out of 100 always sell at breakeven or at a profit? Only 1 out of 100 ever sold at a loss? Seems a bit optimistic...


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## OptsyEagle (Nov 29, 2009)

lightcycle said:


> Really? 99 people out of 100 always sell at breakeven or at a profit? Only 1 out of 100 ever sold at a loss? Seems a bit optimistic...


I forgot to add that you should give it 10 years or more. You will be using housing for a very long, long time. If you want to find the one in 100 that owned a property for 10 or more years and sold it at a lower price, then go ahead and rent. I don't see why someone would want to guarantee they pay a high cost for housing just to prevent them from maybe paying something for housing, but each to their own.


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## DollaWine (Aug 4, 2015)

OptsyEagle said:


> It's quite simple. On the very basic level when you rent you have spent that money. When you buy, it goes into your house and 99 times out of a 100, some nice person gives you it all back later when you sell it.
> 
> It's a no brainer. Spend your money or have it saved for you.
> 
> ...


You mean the people that bought their houses for $100-200k? According to the Globe and Mail the average price for a home in Toronto in 1984 was $96,000. Average household AFTER-TAX income was $50,000. Must have been nice. It's not quote the same for the 28 year old couple today who makes $110k combined and every house they see is going for $750k.

The advice is not the same. The time periods are not the same. Things have changed and housing is not nearly as affordable _right now_. To put a blanket statement over everything and say "no matter the situation, owning a house always wins. It's a no brainer" is extremely narrow-minded and not considerate to the current times in the GTA. Maybe 3 hours away from the city, sure. But that doesn't apply to Toronto.

You say interest costs on the mortgage decline over time. Sure that's correct. But how much time? And how much interest?

Take a $500k mortgage at 3.7% amortized over 25 years. In month 1 you've thrown away $1,559 to interest. 36 months later? Yeah, your interest paid is lower and principle paid is higher. 36 months later, you're still throwing away $1,442 away to interest every month. 

I'm not saying owning a home is bad. Obviously for most people it's a great, great idea. But the market matters. Housing prices matter. Debt load matters. Income increases relative to housing cost increases matter. 

There is no "no brainer" blanket statement that is pro-home ownership when a detached house in Scarborough costs $850,000. 

And lastly you can't just dismiss maintenance and property tax. You seem to be very quick to push it to the side like it's only hundreds a year. Over 5 years of owning a home you could spend well over $50,000 in property tax and maintenance and repairs alone. That is un-ignorable and unfair to dismiss.


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## Just a Guy (Mar 27, 2012)

It's easy for people like optsyeagle to make short sighted statements like they did. For the past twenty years (maybe even a generation of 25 years) interest rates have steadily decreased and prices have steadily increased. Some people have known nothing but. They can't even imagine what happens when interest rates steadily increase while housing prices steadily, if not rapidly decrease. What happens toy your equity when prices decrease? What happens when interest rates compose far more than 50% of your payment?

You can't really blame people who grew up not seeing anything different, but they probably will live to see the other side of the pendulum swing.


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## OptsyEagle (Nov 29, 2009)

Instead of short sighted you go with speculation. What an improvement in advice.

The money spent on rent is gone. The money spent on paying down your mortgage may be gone or it might not.

Anyway. I was just trying to make it simple since too many of the numbers in the calculation are based on future events, which we will know in the future. I believe the odds, for someone planning to stay put for 10 years or more, favour ownership.

That is my opinion. In every discussion there will always be exception and a serious lack of information pertaining to the future, so please feel free to go down the road you want. There cannot be rich people without poor people so each road is important to the benefit of our society.


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## sags (May 15, 2010)

TD is advertising a HELOC for the down payment.

A line of credit on a house people don't even own yet......LOL.

It might be all right to buy if people actually had money......:smile-new:


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## stryder1587 (Feb 27, 2017)

Thank you all for the valuable input. 



DollaWine said:


> Agreed.
> 
> I plan on renting until the storm settles. Hopefully it works out for the better - by then I should have 15-20% down saved, rather than rushing to barely squeeze in with 5% if I bought this year. Besides, another question you need to ask yourself OP - how long will you be in the property? 2 years? 3? 5? Probably not worth it to rent - you'll probably break even or lose money if you sell in 5-7 years or less. The amount you "threw away" to interest would be colossal in comparison to the amount you built in equity.
> 
> I personally think this rollercoaster is going to hit its peak in ~2 years. A market correction is inevitable, this growth we've been seeing simply isn't sustainable. Stay indoors, hoard your belongings and avoid the storm!


We have 20% saved. Though in hindsight, maybe I should have jumped in with only 5% saved 4 years ago and if I sold today based on the astronomical price jumps, the capital appreciation even after all fees and deductions would put me ahead of trying to enter now with my 20%. My investments are just in balanced funds, and returns have been fairly steady. What investment strategies are proposed when you guys mention the renting method winning out financially in the long run?



rebel_ins said:


> You need to decide whether you're looking buying a home or an investment property - it is not clear from reading your post.
> 
> If you're looking to buy a home, where you will live for at least 10 years, as long as you can afford it I personally don't see an issue.
> 
> ...


We are looking to buy a home to raise 1 or 2 kids in as an entry level home that we can hold and hopefully will appreciate by the time we sell it in 10+ years. Like I mentioned above, I knew about the rent and invest route as opposed to saddle yourself up in debt at 5% and pay insurance premiums for the sake of house ownership. I've been continuously putting money away into rrsp, tfsa etc. Fast forward to now, and I see that what I could have afforded back then was better than what I could afford now. So do I continue to play the waiting game and keep putting money away into investments waiting for the correction, or go in now...



Potato said:


> Those tidbits are a huge part of the story. Investing your downpayment (or accounting for the opportunity cost of plowing it into a house) is part of it, but with house prices so high relative to rents, renting is cheaper on an ongoing basis. Right now in North York by my parents, it's insane to buy. A nice 3-4-bedroom house is like $1.5M, and the same place rents for about $3-4k/mo. Both are expensive to be sure, but when you add property tax, maintenance, transaction fees, and insurance into the mix, the purchased house costs you _way _more to live in on a monthly basis than the rental. Like an entire person's after-tax income. You can save and invest that difference and -- even without a housing crash (but an easing of these ridiculous 20%/yr price parabolas) -- you'll come out after a few decades with enough to buy the house and maybe the one next-door, too. Or you can save most of it, still come out financially ahead, and not be house poor, whatever works for you and your situation.
> 
> And if this is a bubble as some (including myself) think it is, then prices may take a very long time to return to the peak. Toronto prices took what was it, 16? years to recover from the 1989 crash? So there's a lot of risk in buying: risks with impact on your life like risk to your career trajectory (may not be able to leave the house and take a job elsewhere), etc. With renting the risks are inconvenience (having to move earlier than expected) and financial. So I take the rent-and-invest option.


I'll need to go home and play around with these calculators a bit. But for those of you that have done this calculation, assuming a disciplined investor, at what rate of portfolio returns and what time frame is necessary to come out ahead?



CalgaryPotato said:


> No one can see the future. All we can do is look at the past. Historically when housing levels have gotten as high compared to income as they have in places like Toronto & Vancouver, it's crashed. If you are perceiving that the worst case scenario is that it goes up 20% and then drops 30% then I don't think you've considered all the scenarios. If in those cities it just dropped down to the level of a mere 5 years ago, it would be a much bigger drop than that.
> 
> It's true that buying at a cheaper interest rate, allows you to pay more, hence what has fueled the bubble. But if you buy now and the interest rate rises in a couple of years. Guess what, you need to renew a couple of years after that, and a few more times before you pay off that mortgage. So while it'll be great to have that head start at today's low interest rates, i wouldn't do the math assuming you are keeping that rate for 25 years.


What happened in Vancouver now is being called a slow down right, not quite a crash. Correct me if I'm wrong but I think I read that prices have dropped about 20%? Of course nobody knows what the government will do to try and correct this, if at all, but I think they wouldn't allow 50%+ crashes that would essentially destroy an entire generation of homeowners and flood the market with foreclosures right? But then, there's Florida.



Just a Guy said:


> When considering the effects of a burst bubble, it's foolish to think that a bigger bubble means a smaller fall. Just because the prices continue to increase each year, doesn't mean the floor gets higher.
> 
> When a small balloon bursts compared to a bigger balloon, is the end result any different?
> 
> The floor will always be based on what is affordable to people.


I agree, that it doesn't matter how much it's bubbled and nobody can tell where we'll end up after the burst. But the floor won't be the same level of affordability before, the factors that lead to the bubble may, to varying degrees, still be at play. The rich are still unaffected by the crash, and if anything, can now afford to buy multiple homes, somewhat sustaining the burst. The people that get hurt are those were highly leveraged up buying beyond means etc.



OptsyEagle said:


> Now we can make this more complex, but make sure when you add up all your numbers that you don't use the mortgage payment, you only use the interest payment. That is because the principle is usually still sitting as equity that you own in your house. Now initially the interest payment will make up almost all of the mortgage payment but that changes over time. So the next basic thing to think about is that your interest costs on the mortgage will most likely decline over most of your life and your rent will increase over most of your life. Let's not get into whether interest rates will go up or down for now, since that is a speculation and whatever they do it will at least be done on a declining mortgage balance.


I'm very curious to see how this plays out on paper, despite your comment of not needing a calculator. I get that as mortgage is paid down, interest on the mortgage is declining as time goes on, and that in general, as housing prices rise, rent typically goes up as market forces drive people to rent over buying which drives rent prices up. So if I'm getting this right, you're saying ignore principal payment as you get that back, consider it a wash, but don't need to factor in appreciation either. Just look at what is actually paid out, which is either interest for a buyer, or rent as a renter. Plug in what those numbers would be today, and play with estimates of 1) rising interest rates and 2) rising rental prices, and ultimately figure out which costs me more at the end of a mortgage life.


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## sags (May 15, 2010)

People are walking so close to the line that one minor problem will cause financial ruin.

The banks, credit agencies, CMHC have issued many reports that show people are mired in debt, have no savings, couldn't last a week without a payday and the real estate companies are complaining that many people cannot qualify for a mortgage because they now have to use the "posted" interest rate instead of the discounted rate. A couple points of interest and they don't qualify tells me they shouldn't even consider taking on mortgage debt at these levels.

On average Canadians salaries, home prices have become unaffordable.

Wages have to go up or home prices have to come down.

It is true nobody knows the future, but we know a big mortgage debt is a long time into the future.

At these elevated prices, a forced sale of a $850,000 home could be a crippling financial event.

How many people struggling to pay their mortgage could afford to lose their home and still owe the bank $200,000 ?

Home purchases in a bubble area have become a huge financial gamble for those living on the edge.


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## Just a Guy (Mar 27, 2012)

OptsyEagle said:


> Instead of short sighted you go with speculation. What an improvement in advice.
> 
> The money spent on rent is gone. The money spent on paying down your mortgage may be gone or it might not.
> 
> ...


Some interesting statistics you choose to ignore, take a look at stats Canada if you want...

Money spent on rent is usually less than mo he spent on a mortgage.

Canadians move every 7 years on average, not too many stay for 10 years.

Bubbles are bursting all over the place, Vancouver, Calgary, the USA...yet, they tend to recover because interest rates remain low. 

The average price per home is $450k, the average income is only $50-60k. Houses won't remain affordable if interest rates increase. The payment rises about $50/month on every $100k borrowed for each 1% increase in interest. Do you have a spare $250/month? That's 5% of the average canadian's pretax income (with only a 1% rise). 

This isn't speculation, this is math.


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## OptsyEagle (Nov 29, 2009)

No it's speculation because the future has not unfolded.

My advice was for someone who stays 10 years or more. I know they cannot know that for sure in advance but if they do decide to move before 10 years is up, I suspect their chances of losing money are significantly increased.

Anyway, I was trying to move people away from statistics. They rarely tell the personal story.

My opinion has been stated in the simplest form. In my opinion the odds favour the home owner over the renter over a 10 year or longer time frame.


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## OptsyEagle (Nov 29, 2009)

stryder1587 said:


> I'm very curious to see how this plays out on paper, despite your comment of not needing a calculator. I get that as mortgage is paid down, interest on the mortgage is declining as time goes on, and that in general, as housing prices rise, rent typically goes up as market forces drive people to rent over buying which drives rent prices up. So if I'm getting this right, you're saying ignore principal payment as you get that back, consider it a wash, but don't need to factor in appreciation either. Just look at what is actually paid out, which is either interest for a buyer, or rent as a renter. Plug in what those numbers would be today, and play with estimates of 1) rising interest rates and 2) rising rental prices, and ultimately figure out which costs me more at the end of a mortgage life.


It will be very difficult to use paper since the future appreciation of the home is used in my basic analogy to cover the property taxes and maintenance costs. We can never know how much a house will appreciate, if it does at all, nor can we know the exact property taxes and maintenance costs in the future. All I am saying is that there is a very good chance in the long term that you are going to get help with those costs, via home appreciation. There is no help for the costs to the renter.

Yes. It would be wrong to use the entire mortgage payment in your calculation, since the principle portion results in home equity value and is not truly an expense. The interest component is a cost, but also does not stay the same as it does in the beginning. It should eventually become a very small number but in the 1st 10 years that cost can varied a lot. The problem with doing a calculation is that you will never know those future numbers for interest, rent, property appreciation, taxes and maintenance. So when you are done beating it to death, you will have about the same uncertainty that you have now before you have done the calculation, so why bother.

I will repeat my opinion. From what I have said, I believe the odds favour the owner over the renter over a 10 year or longer time frame.


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## amitdi (May 31, 2012)

stryder1587 said:


> What do you guys think?


from all my reading and experience with talking to others and my own home-buying process, this is what I think - 
you should stop financially analyzing your primary residence purchase. just dont look it at it like an investment, with rental property, you can but not with your own home.

if you win, thats a bonus. but dont shoot for a win, it will hurt more if you lose. just buy as if you are buying a car. make sure if it serves you well.


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## Just a Guy (Mar 27, 2012)

OptsyEagle said:


> No it's speculation because the future has not unfolded.
> 
> My advice was for someone who stays 10 years or more.


So, if you were standing in fort McMurray earlier this year, would you be shouting...since my house isn't on fire, it can't burn down because the future hasn't unfolded.

The Feds in the states are giving every indication hat rates are going up. Canada rarely bucks what the states does for long (but again that's history, not the future). The Canadian government has been trying to curb lending for several years, again history...though one may say trend.

True, we don't actually know what will happen in the future, but if you see fire on the horizon, its best to be cautious, not pretend like it could never happen...ask how well that worked in Calgary, Vancouver, the USA in 2007...even people who could afford places and had been paying for years lost their house.

As for your "target" audience, we've already established that that is less than 50% of the population. Why not just say "my advice is only for those who'll never lose money on a house purchase", then you'll always be right.


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## OptsyEagle (Nov 29, 2009)

Just a Guy said:


> So, if you were standing in fort McMurray earlier this year, would you be shouting...since my house isn't on fire, it can't burn down because the future hasn't unfolded.
> 
> The Feds in the states are giving every indication hat rates are going up. Canada rarely bucks what the states does for long (but again that's history, not the future). The Canadian government has been trying to curb lending for several years, again history...though one may say trend.
> 
> ...


Your posts are getting more and more desperate. You are for renting and I am for buying. Done. Let's move on.


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## Just a Guy (Mar 27, 2012)

I admit I'm a little grumpy today...

However if you read my other postings, especially the first one on this thread, you'll see I'm neither for or against renting/ownership. It's an individual choice, where there is no "right" answer.


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## OptsyEagle (Nov 29, 2009)

Just a Guy said:


> I admit I'm a little grumpy today...
> 
> However if you read my other postings, especially the first one on this thread, you'll see I'm neither for or against renting/ownership. It's an individual choice, where there is no "right" answer.


It seemed like you thought you had the right answer to me. 

I do agree with that last statement, however, so let's call that a win for both of us.


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## hboy54 (Sep 16, 2016)

OptsyEagle said:


> It's a no brainer. You don't need a calculator. It just seems like you do because of all the different expenses and concepts. The easiest way to see things is look at the people you know that are 50 to 70. Separate the renters from the owners and look at who has some financial wealth and who can't find a pot to P in. It's the owners that are not crossing their legs and holding their crotches.


Well strictly speaking, I am an owner with a house worth according to MPAC something like $225K (I forget the exact number, but it went down this year). The wealth outside that exceeds the value of the house by more than an order of magnitude. So I can be modeled as approximately a renter that invested the equity that might have gone into RE and done better than being a hard core RE owner.

So it is entirely possible to do better as a renter and investor vs homeowner. The long term mathematics makes it likely even provided one is sensible: equities have a ~century long CAGR of 8%, RE about 5%. Most are not sensible of course, so reality usually does not follow the mathematics. 

I see the mathematics here as a "no brainer" too frankly. I guess different folks have different no brainers.

Around now, someone will bring up, "yabut RE can use leverage for the win and you can't do that with equities". Well, I currently have about $550,000 borrowed and have been almost continuously leveraged for 15 years or more now. This is of course safer than RE even though it is almost universally considered to be the opposite. One house purchased on one day in one market is according to popular opinion completely safe whereas 20 equities at 5% each is complete recklessness. The popular opinion is completely wrong of course, but few can see the truth here.

So in summary, rent and invest mathematically wins over buying a house, but psychologically loses for most, so most are better off in RE. Not that I am advising anyone to buy a $1M house right now.

hboy54


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## tavogl (Oct 1, 2014)

There is something I still don't understand, how come people are saying that the bubble burst in Vancouver? I live in the area and I can tell you prices are NOT going down, at least for the pre 500k market, and that ONLY covers condos, you can not get even a townhome for 500k, and I am talking about Coquitlam ( 1 hour away from Vancouver)

4 Months ago I saw a 2br 2 washroom condo in Coquitlam going for 430k, new low rise complex, it's completely sold out and the same condo I saw is going for 460k plus TODAY.

New condos in the area are getting built, and in pre construction stage selling for 450k plus. How come we think prices are going down? I dont even want to talk about buying in Vancouver as similar condos that what I've seen in Coquitlam, but located in the city go for 600k plus.

I am really hoping for a massive market correction, we need at least 30% correction, but closer to 50% would be ideal and logical when comparing salaries with housing prices. 

I was just talking with my boss today who bought a 3500 sqft house in New Westminster for 90k 10 years ago, today it's gotta be over 1 million dollars for sure. whoever says there has been a correction, has not been watching the market in vancouver.... My wife just got a permanent job offer with her employer, and she's our main income, if it wasnt because of that i'd be out of this insanity, where couples make 150k a year and can't get into the market. "ommmmmmmm"


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## rebel_ins (Apr 6, 2009)

stryder1587 said:


> We are looking to buy a home to raise 1 or 2 kids in as an entry level home that we can hold and hopefully will appreciate by the time we sell it in 10+ years. Like I mentioned above, I knew about the rent and invest route as opposed to saddle yourself up in debt at 5% and pay insurance premiums for the sake of house ownership. I've been continuously putting money away into rrsp, tfsa etc. Fast forward to now, and I see that what I could have afforded back then was better than what I could afford now. So do I continue to play the waiting game and keep putting money away into investments waiting for the correction, or go in now...


It sounds like you're using the same parameters and expectations of investment return to assess two completely different goals.

A home is not an investment, it is a place to live. If you truly want a home, are prepared to live there for a long time (over 10 years), and can afford it, then by all means do what works for you. Note that affordability here means you are _also_ comfortable with the costs and risks associated with buying. In today's market, those risks include a severe correction, or a crash.

To assess your affordability level, you really need to take the full cost of home ownership into consideration, as well as all the potential outcomes. Something tells me that you haven't really done that.

For example, you say in response to another comment that you don't think our government would allow a 50% crash. What makes you think that? What are the fundamentals justifying that line of thought? Forget about Florida. If you look back at the Toronto housing bubble that peaked in 1989, house prices in downtown Toronto declined by 50% in 7 years. In nominal terms, it took 13 years for home prices to appreciate to the 1989 peak. In _real_ terms - i.e. adjusting for inflation, it actually took around 20 years.

_I_ play the waiting game because I cannot afford the risks associated with home ownership in today's market. It really is that simple.


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## Just a Guy (Mar 27, 2012)

Ideally, one of the best things to do financially may be to rent, and invest in rentals. If you can actually find reasonably priced rentals, you get the benefits of cash flow, leverage, potential capital gains, etc. And you get the benefits of renting.

Tavogl, I probably misstated that Vancouver has burst, it has had some of the air let out...same with Calgary. It won't truly burst until something major changes like interest rates rise. You should also look for what places are actually selling at vs. What they are currently listed for. In many markets where there have been corrections, people are still trying to get unreasonable prices (the listing price). They can ask whatever they want, perhaps even a few fools will pay it (as a seller you only need one person). For some, this is an "opportunity" to get in, and interest rates make it "affordable", so people blindly overpay and continue to inflate the bubble...

This is why the USA has had a fairly good recovery since the meltdown in 2007. The houses today, which have somewhat returned to 2007 prices, are no more magically affordable today than they were in 2007, yet the prices have returned. If the interest rates go up as planned, I expect another housing correction down south will follow, but like my analogy of the two balloons earlier, their smaller balloon won't protect them.


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## mordko (Jan 23, 2016)

Vancouver:

- The amount of $s spent on buying houses is down by half.
- Nobody is buying high end houses.
- Sales are down 40% (!)
- "The average resale price in Greater Vancouver was $878,242 in January, down 18.9 per cent from a year earlier, when it stood at $1.038 million, according to numbers from the Canadian Real Estate Association."

Now... It's possible that a segment of the market, low-end condos and properties in certain locations are holding up. And they are basing this on sales in January. Things may turn around in spring. More likely things will actually get worse before they get better.

Either way, while it still has some air left, I would call this a burst bubble. 

http://www.huffingtonpost.ca/2017/02/15/vancouver-average-house-price-january-2017_n_14775268.html


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## tavogl (Oct 1, 2014)

Just a Guy said:


> Ideally, one of the best things to do financially may be to rent, and invest in rentals. If you can actually find reasonably priced rentals, you get the benefits of cash flow, leverage, potential capital gains, etc. And you get the benefits of renting.
> 
> Tavogl, I probably misstated that Vancouver has burst, it has had some of the air let out...same with Calgary. It won't truly burst until something major changes like interest rates rise. You should also look for what places are actually selling at vs. What they are currently listed for. In many markets where there have been corrections, people are still trying to get unreasonable prices (the listing price). They can ask whatever they want, perhaps even a few fools will pay it (as a seller you only need one person). For some, this is an "opportunity" to get in, and interest rates make it "affordable", so people blindly overpay and continue to inflate the bubble...
> 
> This is why the USA has had a fairly good recovery since the meltdown in 2007. The houses today, which have somewhat returned to 2007 prices, are no more magically affordable today than they were in 2007, yet the prices have returned. If the interest rates go up as planned, I expect another housing correction down south will follow, but like my analogy of the two balloons earlier, their smaller balloon won't protect them.


Is there a way to find out how much are this places getting sold for? another issue that I see is the government lending first time home buyers 5% of their down payment, how is this supposed lower prices? this is just fueling a fake economy, making people think they can afford a house and continue to drive prices up and up. I honestly do not see an ending, even I read stories like this everyday.http://vancouversun.com/news/local-news/possible-vancouver-housing-market-corrections-a-concern-for-scotiabank-ceo


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## mordko (Jan 23, 2016)

tavogl said:


> Is there a way to find out how much are this places getting sold for?


Assuming your rules are the same as in Ontario, you need to find an agent. The agent won't tell you if you are just nosy, unless you have a relationship with them. Alternatively you can wait until the sale has closed and pay the land registry to get the sale price. The information is public but not free + there will be a delay.


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## mordko (Jan 23, 2016)

A good indicator of the state of the market is the number of houses listed vs sold in a month. Prices sometimes hold up for a time because people have unrealistic expectations.


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## Pluto (Sep 12, 2013)

OK so there should be an attached graph, and clicking on it should get a larger version. 

1. In 1989 prices were about 48% higher than the trend (red line). Currently, prices are about 45% above the trend so if that is a guide, and I'm assuming it is, prices have about topped out. there are other reasons as well.

2. The OP's plan was to rent and save but now finds it hasn't worked out due to relentless price increases. the OP is about to cave in. I'm thinking about that phrase by some investing sage...*what the smart do in the beginning, fools do at the end*....And *be fearful with others are greedy, and greedy when others are fearful....*

3. I'm with the view that being an owner is better than being a loaner, or renter. But there are times to be cautious and patient. this seems to be one of thsoe times. 

4. Besides the obvious runup in prices way above the trend, we have a maturing economic recovery. Low unemployment numbers and fairly storng job growth will make US fed, and Canada more bold about raising rates, especially when inflation ticks up. 

When I add it all up, this isn't a good time to buy in Vancouver or To. I don't know about a crash, which to me is a very rapid 20% + decline, but there is a very high probablity of a very lengthy consolodation that gives savers a chance to catch up. 
Keep saving, and play the waiting game. 
Also, some people might assume that they must be in GTA or whatever...But is it really true? In Windsor, for example, I think one can buy a 3 bed detached for about 200,000. Must be other places like that as well. Getting employment in a place like Windsor would certainly open the door to home ownership considering what you have saved already.


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## Saniokca (Sep 5, 2009)

stryder1587 said:


> Also, lets say that crash comes in 2 years, but during those 2 years, real estate prices have already gone up another 20% (could be more seeing as last year it went up 22% alone), and the crash hits the market by -30%. It would be similar to buying today at a 10% discount (20%-30%), but at higher interest rates.


That's not true. If a house today costs 100,000 and goes up by 20% it become 120,000. A Drop of 30% puts it at 84,000 or a 16% "discount". The trip up is always harder percentage wise...


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## OptsyEagle (Nov 29, 2009)

Pluto said:


> OK so there should be an attached graph, and clicking on it should get a larger version.


Too bad we couldn't get that graph with Toronto and Vancouver removed from the entire time frame. I doubt the rest of the country is suffering from such overvaluation, but of course, no one seems to have the graph.


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## Pluto (Sep 12, 2013)

OptsyEagle said:


> Too bad we couldn't get that graph with Toronto and Vancouver removed from the entire time frame. I doubt the rest of the country is suffering from such overvaluation, but of course, no one seems to have the graph.


I agree. Might have to do it on a city by city basis. Here is Windsor, for example. Average house price about $220,000

http://www.wecartech.com/wecfiles/stats_new/2017/jan/


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## pwm (Jan 19, 2012)

*ROB CARRICK
Soaring rents still cheaper than owning a house.*

This from today G&M:

http://www.theglobeandmail.com/glob...-cheaper-than-owning-a-house/article34184154/


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## Just a Guy (Mar 27, 2012)

Pluto said:


> I agree. Might have to do it on a city by city basis. Here is Windsor, for example. Average house price about $220,000
> 
> http://www.wecartech.com/wecfiles/stats_new/2017/jan/


Yeah, but the median income is only $24k.

http://www.citywindsor.ca/residents...age&VisibilityContext=WSSWebPartPage&#table21

There's a lot of unemployment and the casino is the major hirer.


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## sags (May 15, 2010)

I remember media stories about Windsor, where people who had paid their mortgages faithfully and had jobs, were told the banks wouldn't renew their mortgages unless they paid them down to the home value. They ended up losing their home.

It makes me wonder what the banks would do if Vancouver and Toronto prices collapse.

A lot of people assume the banks would ignore the shortfall and renew the mortgage.........but there is no guarantee they would.


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## Mukhang pera (Feb 26, 2016)

sags said:


> I remember media stories about Windsor, where people who had paid their mortgages faithfully and had jobs, were told the banks wouldn't renew their mortgages unless they paid them down to the home value. They ended up losing their home.
> 
> It makes me wonder what the banks would do if Vancouver and Toronto prices collapse.
> 
> A lot of people assume the banks would ignore the shortfall and renew the mortgage.........but there is no guarantee they would.


Yep, when that $4 million Vancouver house drops ( or "plummets" or "plunges" or "skids" or "crashes" and other choice descriptors that attend these events) to $2.5 million, it will cause some angst among those who have to come up with a million bucks or so to cover the bank's cash call to get the debt down to $2.5 million or so.


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## Pluto (Sep 12, 2013)

Just a Guy said:


> Yeah, but the median income is only $24k.
> 
> http://www.citywindsor.ca/residents...age&VisibilityContext=WSSWebPartPage&#table21
> 
> There's a lot of unemployment and the casino is the major hirer.


I see.
Median family income in Toronto = 75,270
Median family income Windsor = 76,260

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm

Canada wide median income for an indiviual is about 29000.


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