“Rising Interest Rates”, “A Cooling of Housing Prices Expected”, “Banks Tighten Mortgage Rules”…these are the headlines dominating the Canadian real estate scene over the past few months. With this comes the longstanding question that most consumers ask themselves with regards to how they pay for housing – should I RENT or should I BUY?
The Case for Renting
Ben Felix of PWL Capital, in a February ‘18 G&M article, emphasizes that those in the market to buy a home should think carefully about what their motivation is. If your motivation to purchase is solely based on a stigma around renting or an assumption that one is simply “throwing away money” by renting, one should most definitely consider the following factors as well. How long are you planning on living in this home for? If this is a short term purchase (less than 10 years) then the additional costs of purchasing and eventually selling (i.e. legal costs, tax, agent fees) have a lesser chance of being absorbed by any potential increase in real estate prices. Ben also contends that the financial reasons for purchasing a home are flawed and that a renter can build as much wealth, or more, then a homeowner over the course of their lives.
The Case for Buying
When looking at the buy side of the argument, I referred to a G&M Report on Business Mag article by Duncan Hood (Why telling people to rent rather than buy is bad advice). The article reinstates that an argument can always be made that renting is a better option as you have lower monthly payments and you can invest the difference to attain a similar overall net worth. This is particularly true in the Ottawa market where over the past 5 years, the stock market has outperformed the housing market with average annual increases of 6% for the S&P/TSX Composite, versus 2.24% for the real estate market (Ottawa Real Estate Board MLS Residential Sales (including Condominium) Percentage Increase or Decrease Over Previous Year). Duncan goes on to articulate a point that he believes shelves these arguments for renting over buying, and one which I feel has substantial merit.
The point though that I completely agree with Duncan on is that it takes a very disciplined renter to achieve these same or better returns, and in a consumption oriented society, this is wishful thinking. To overcome these consumerist temptations that surround us in our daily lives, purchasing real estate provides a simplified and clear path for the majority of consumers to improve overall net worth over the long term.