I agree with the article - too many people think houses normally go up 5%+ per year.
The problem is that we've had a period (mid-90's or so up to now) where it was hard to go wrong with real estate. Now you have people who seem to be buying houses with larger mortgages so they don't get left behind.
The idea of renting and saving the difference until you can buy comfortably just doesn't seem to be popular.
the CB article is a great link, MG.
it's a good & timely article.
typically kind & generous of you to share it.
i suspect CB has the copyright.
it'll be on the masthead.
probbly ok this time but not a good idea to violate copyright law repeatedly.
people often get around copyright by posting a summary - or even an extract as long as it's in quotes & the citation is presented - and including the link to the original article. This throws the ball into CB's court, whether they are going to charge for an online article, or let members only read it, or give it away to the public at large ... and absolves the linker.
There are too many people who insist that you can't go wrong with buying and that renting is a 100% loss. It's almost a societally accepted norm that owning property is a must and that you are not successful if you don't.
I can refute their assertions on numerous fronts.
Glad to hear I'm not the only one who feels this way.
no, no problem at all. Even if CB sold the article on its own website & through subscrip only, it's totally unlikely there there could have been any consequences. I'd just wanted to get the idea across as a safeguard for the future.
if a subscription is free, one would think the editors & publishers would be enchanted to know an article is circulating rapidly. All that free publicity for them. And it's high-quality publicity too.
(memo to self. Some day when nothing better to do, absolutely nothing at all, not even reading comic books, find out how publishers of freebies like to have their credits presented in the internet when their articles get posted around.) (probably just the way MG did, very gracefully & completely, with full credits.)
but it's to keep in mind, though, when posting something from a source that normally gets paid and that is copyrighted.
i'm no expert on internet libel or copyright law - nobody is except the few lawyers who've already handled the cases - but it's apparent that a body of precedents is building up rapidly. And in your case - busy finance professional, mom, writer, environmentalist, kind helper of strangers on message boards - it seemed to me that nuisances like some publisher taking umbrage over a copyright slip should be prevented in advance.
Let's be clear. There is zero chance of copyright violation here. Posting a link to the publication's website is identical to saying "Go to your newstand and check it out." By posting it for free online, the publication wants people to direct others to their website. This is totally and completely unambiguous, considering MG did not paste any portion of the work in question here.
I'm reading almost a veiled threat in what humble posted. He says there is no problem but then goes on to dance around the subject taking drive-by smeares and trying to scare us with the use of attention-getting words like libel, lawsuit, lawyer, etc. What gives? Are you a troll?
Let's get back on topic please. If humble wants to sue private individuals who make use of copy-paste on the Internet (which didn't even happen here), let him go ahead and waste his own time and money. We're here to discuss finances.
I think we're all scratching our heads on the copyright talk. Someone can start a new thread for that one - it's out of place here.
I read the CB article a couple of weeks ago, so this is all from memory....
The article touches mainly on why buying a house today might not be a good investment (bubble talk, high debt, low interest rates, etc). There's been plenty of ink spilled on this in the media lately, and tons of articles we could link to there. CB actually did a pretty good job of summing up most of the "bad press" from the last few months.
The article also skims a bit on why even under a model of steady upward price growth, houses are mediocre investments, leaving aside leverage effect for the time being. They have "MER's" and trading costs, etc.
I thought there had been a thread on the forum discussing principle residences from a purely financial point of view. Anyone know where it is? What about a link to a detailed quantitative analysis of the economics of home ownership?
I have a real problem with the definition of investment as it pertains to real estate in particular. The term gets used very loosely in my opinion.
An investment is something like the multi unit buildings I manage. You pay a certain amount for the asset and provide a the service of housing in exchange for money. You know what you pay, you can predict your income and you know what the return on your investment will be (approximately) If you manage your building well you can get more rents and increase the value of your asset.
Whenever you buy an investment property and it is cash flow negative it becomes speculation. I am referring to the vast numbers of investment condo's and houses sold as "investments" to naive buyers trying to get on the money train.
Now things get a little murky when you talk about principal residences. First of all in Canada not having a place to call home is not an option because it's too cold to sleep outside. So then you have a choice to buy or rent.
Renting is expensive at least in Toronto. The average savings of the renter is $2000. Plus you have to consider what you get for your money. In my case when I moved to Toronto I had to deal with cockroaches, stealing landlords, and lack of stability. I made the choice to spend a little more money and be able to control my environment, I bought a very modest house which I rented out a portion of. With the rental income I paid one mortgage payment and I paid the other mortgage payment with my income. Every month I made double payments on my mortgage. I paid the same money I used to give my landlord.
Is my house an investment, not really, I get the use of the asset and that is what is important. I need to have a warm place to sleep at night every night. Does it matter if it goes up or down in value? Not really because I am getting use of it.
Now if I buy a second property then that may be an investment.
My take on buying a house, is yes absolutely! It forces you to save and helps you build equity. Just make sure you don't overextend yourself. As for the opinions on the housing market...they are dime a dozen. Just like everyone has an opinon on interest rate hikes, equity markets, inflation, deflation, oil etc. etc, you have the entire gamut. At some point you have to make a decision and I feel that the decision to buy a house should be dictated by personal situation and finances only. Build the equity and take the plunge....a primary residence is much more than just an investment.
Although I believe a house is a lifestyle decision and not an investment, over a long period of time
a home still is a good investment. I say that coming from Winnipeg where house prices did not rise for at least a dozen years - the entire time I was a REALTOR. Home ownership is or should be measured over a long period of time - "buy and hold".
Perhaps I missed it when I skimmed the article, but I believe that in the attempt to make stock market returns look better than the increase in value of a principal residence, they "forgot" to mention that with a house the increase is tax free and with stock market returns you pay capital gains tax.
That is a very large factor when comparing returns.
For the most part, I agree with the article. A principal residence is frequently a poor investment. That being said, I do own a home. My decision to buy was not based on nvestment returns but a simple desire to own my own home. That decision has turned out well because housing prices and rents have skyrocketed in Edmonton.
Pros of owning a home
For me the main benefit isn't return but a warm, fuzzy feeling from owning something I can call my own. However, I bought my home before the drastic increases in housing prices. If I were buying now, the warm, fuzzy feeling might be outweighed by high housing prices.
As mentioned in the thread, owning a home is a form of forced saving. Also mentioned, the capital gain on a principal residence is tax-free.
Cons of homeownership
I suspect the returns mentioned in the article are overstated. As mentioned previously in this thread, the gains from a principal residence are tax-free while capital gains from stocks are not. However, for me, the capital gains from stocks aren't that high. I'm at a MTR of 39%, so I end up paying tax of ~ 19.5% on capital gains. What some of the proponents of homeownership may overlook are the carrying costs associated with each investment. For stocks, the carrying cost is zero. For homes, there are property taxes (mine have gone up every year since I bought), insurance (again rising), and renovation costs (I had a new roof put in), and time (mowing, shovelling snow, etc). When the carrying costs of a home are included, the return may be substantially less than quoted by the article. As touched on by the article, owning a home may cause one to make bad financial decisions e.g. people may stay in a depressed area to hang on to their home. Detroit is a perfect example. People hang on to their homes hoping in vain for a rebound instead of taking the loss and moving to a better job. Also, proponents seem to forget about the after-tax cost of carrying a mortgage. For example, if a home can be sold for a $500,000 capital gain after 20 years the net gain isn't $500,000. The net gain equals $500,000 minus carrying costs (insurance, property tax), mortgage costs, maintenance costs, etc before inflation. The article quotes a return in Vancouver of just over 3%. Once inflation is considered the return is almost zero. Once carrying costs are considered, the return may be negative.
I like my home. But it's not an investment, at least not a good one.
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