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"There is no financial argument for buying a house"
January 1, 2014 6:47 AM   Subscribe

Crusty real estate blogger Garth Turner begins the year with his rules. He's had a good year: winner of a "top personal finance blog" poll; exposing the shenanigans of Canadian real estate statistics. [previously]
posted by anothermug (107 comments total) 31 users marked this as a favorite

 
His summary of buying/renting is interesting:

Without consistent, relentless annual increases in real estate values, there is no financial argument for buying a house.

I've rented and I have owned, and my takeaway is that the financial upsides of owning are usually exaggerated, and that the downsides of renting happen much more at the lower end of the market. When I was a student and renting from slumlords, I knew to my bones that renting was bad and awful. Now that I am in a position to choose between buying and renting a nice, well-kept place, both the finances and the pluses/minuses are a lot closer.
posted by Dip Flash at 6:59 AM on January 1 [7 favorites]


I meant to add: what is up with his "lawn Asian" joke? Is that a Canadian thing?
posted by Dip Flash at 6:59 AM on January 1 [1 favorite]


I'm in Canada and never heard of a lawn Asian. Kind of distracting from an otherwise good article. He's right about the unsustainable pricing on Vancouver, it's stupidly expensive.
posted by arcticseal at 7:04 AM on January 1


I had a point in my life when buying was better than renting.
I have rarely regretted buying, but it had been that sort of market.

But show me a "real estate blogger" and... I want to drown him.
posted by Mezentian at 7:04 AM on January 1 [7 favorites]


Metafilter: They probably home-school and change their own oil, too. Gross.
posted by (Arsenio) Hall and (Warren) Oates at 7:05 AM on January 1 [1 favorite]


I assumed what is up with his "lawn Asian" joke was akin to Neville in Australia, now I think it is some niche "Mexican gardener" joke?
posted by Mezentian at 7:06 AM on January 1


I can echo a few of his sentiments, especially the for-sale-by-owner listings. When I was looking at homes back in 2005 I took a gander at a handful of FSBOs and every single one was exceptionally overpriced with no regard to the comparables of the neighborhood. Every single negotiation was a disaster because they all felt their homes were unique snowflakes deserving a 10-20% premium to the market. Worse, negotiations were painful because they were all very emotionally attached for one reason or another. That makes it very hard to say things like, "well yes, Mr. Smith, the home is very nice, but code states you cannot splice romex into knob and tube" without offending. I politely tried negotiating several times with several homeowners with the same results each time. Funny enough - within 6-12 months all of the FSBOs were eventually listed with agents.

In true "if I knew then what I know now" fashion, I would also add that not only should you get an inspection, but you should always hire your own inspector and NEVER go with the realtor's choice: the realtor's inspector will always try to minimize the costs or potential issues found whereby if you choose your own he/she will point out every major consideration, plus give you the "if this were my purchase...." speech.

As for the value of renting versus buying - this is a debate for the ages. I can tell you this, though: many of my parents friends are retiring and instead of downsizing and buying they are renting homes. As I told my dad a year or so back: do you really want to spend your retirement dollars on replacing a roof when you're 75?
posted by tgrundke at 7:16 AM on January 1 [18 favorites]


In true "if I knew then what I know now" fashion, I would also add that not only should you get an inspection, but you should always hire your own inspector and NEVER go with the realtor's choice: the realtor's inspector will always try to minimize the costs or potential issues found whereby if you choose your own he/she will point out every major consideration, plus give you the "if this were my purchase...." speech.

When I was selling a house a while back, it got to the point of the inspection and the realtor told me, "Don't worry, my inspector knows how to male deals happen." So yay for me, but a total waste of $500 for the buyer. It was as stark an example as I needed to see of how corrupt the real estate process can be.
posted by Dip Flash at 7:27 AM on January 1 [6 favorites]


Garth Turner rather ruthlessly fucked over a friend of mine in a real estate deal this summer.
Another of his rules is (apparently) that, as long as you can afford better lawyers than the other party, it's totally fine to screw them over based on a minute technicality.
posted by Flashman at 7:31 AM on January 1 [8 favorites]


Dumb question -- how can it be possible that renting is no more expensive than owning? If you pay a mortgage for 30 years, at the end of it you have a house. If you pay rent for 30 years, at the end of it you don't have a house. Even if home prices remain exactly the same, this is still true, right?

On the pro-rent side, we have the costs of home repair and maintenance to consider. But, (a) are those really big enough to cancel out the equity you're getting if you own? and (b) if maintenance is so expensive, presumably landlords fold it into the rent, so if you're renting you're paying for it anyway.

What am I missing? (Really asking -- I'm genuinely ignorant and curious).
posted by officer_fred at 7:34 AM on January 1 [8 favorites]


Home repair, maintenance, taxes, insurance. In some places, those will constitute a bigger chunk than in other places. Buying requires a deposit and extra expenses throughout the year. The financial argument is that if you invest the deposit and the extra monthly savings for 30 years, you would end up with more than if you had purchased a house.

That's just the financial argument, though. To those who then say "that argument is dumb because I'm glad I bought a house" are missing the point of the argument. Of course people consider other things when debating whether to buy a house -- security, comfort, prestige, etc. -- but those are separate from the financial argument. One financial advantage I can see in favor of buying over renting is that buying is a way to force you to put income into an investment. If you're disciplined and sock away money devoutly while renting then the numbers will work out well, but I'd venture that a lot of people would rather just buy the house and put the money into the mortgage.
posted by (Arsenio) Hall and (Warren) Oates at 7:44 AM on January 1 [8 favorites]


If you pay a mortgage for 30 years, at the end of it you have a house. If you pay rent for 30 years, at the end of it you don't have a house.

The vast majority of home buyers never, ever pay-off a 30-year mortgage. They move before they get to the end, often buying yet another home and starting afresh with a new mortgage.

For most home owners, buying a home is, for all practical purposes, akin to renting because you never stop making monthly payments. Plus, you have to spend out of your own pocket for every repair, big and small, that comes along. And regular maintenance. And groundskeeping.
posted by Thorzdad at 7:48 AM on January 1 [25 favorites]


Home repair, maintenance, taxes, insurance. In some places, those will constitute a bigger chunk than in other places. Buying requires a deposit and extra expenses throughout the year. The financial argument is that if you invest the deposit and the extra monthly savings for 30 years, you would end up with more than if you had purchased a house.

Plus transaction costs. Both buying and selling a house is expensive and full of fees.
posted by Dip Flash at 7:50 AM on January 1 [3 favorites]


Also, with a mortgage, assuming for a second you actually end up paying off the full amount, you'll spend at least 50% more than the actual cost of the house when interest is thrown in. That means for a $500,000 house, you'll pay $750,000 over the life of the mortgage before you've paid a dime for upkeep, taxes and whatnot.

It's absolutely a useful thing to consider and not a clear decision.

Though I have to say I'm surprised Turner keeps making it on to the Blue. Nothing wrong with independent financial thinking, but Turner is a manipulative, paranoid knob. He's the Alex Jones of the Canadian financial world.
posted by dry white toast at 7:58 AM on January 1 [13 favorites]


Maybe it's just psychological but I just hate renting. I can't stand the idea of paying someone else's mortgage. A huge part of the reason that I've stayed in the rust belt is that I've been able to own my own homes since I was 25 (except for two years when I got divorced). Plus I like the idea that my monthly payments are $1200 now and will be close to $1200 in 20 years when I retire. A two bedroom apartment on my street costs more than that now and rents have been skyrocketing lately while home prices have been pretty stable.
posted by octothorpe at 7:59 AM on January 1 [1 favorite]


Reason #23 to rent: not being stuck with an unsellable house. I once had a beautiful house on the edge of a national park. Needed to move for work. Unfortunately we had the same postal code as a very rough area down the road, and it was the start of a recession. We dropped the price to 60 percent of its value, but could not sell. Eventually the bank repossesed and I had to declare bankrupt.

Makes you think twice about buying, I can tell you.
posted by EnterTheStory at 8:01 AM on January 1 [10 favorites]


My wife and I paying less per month for a 3 bedroom house with a fantastically large kitchen, plenty of storage, a yard she can garden in, etc. than we did for a 2 bedroom apartment. Granted, it's in a much cheaper neighborhood.

In fact I've been paying extra principal almost every month. We're likely to have our 30 year loan paid off in 15 years. We don't currently have any plans to move ever again, but of course you never really know.

We've had to have the roof rebuilt, but insurance actually paid us more than the cost of the repair. We've had to replace the water heater and air conditioning -- covered by home warranty, and in the latter case a rebate from our power company.

So far it's been financially sound.
posted by Foosnark at 8:07 AM on January 1 [2 favorites]


From what I understand, the main plus of renting vs. buying is whether or not you're going to make your own investments. The idea of owning a home as a major investment actually gives you pretty shitty returns when you account for inflation and the interest for a mortgage over a 30-year period. You're making a lot of assumptions about growth when you buy a house, namely that your house will have appreciated in value when you need to sell it, which is a risky assumption to make. Not to mention the likely property taxes and maintenance that you need to put into a house (new windows/roof/flooring), it may well end up not being a great return even at the end of a 30-year period.

The argument for renting is that you're paying less, giving you more money to sink into the stock market, which so far over 30-year periods gives you a much higher rate of return than what you get out of a house. Of course, there's other things about renting, such as rents increasing over a period of 30 years, but the basis of "renting might be a better idea" is entirely that you will make smarter investments. If you don't, then you certainly lose out on the main advantage of renting.

There is also the other argument for renting, which is that if you're not certain that you're going to stay in the same for the next 15-20 years, don't bother buying. Today's modern society is more mobile (that is, willing to move to other states and countries in order to get the job they want) than it was 30 years ago, so unless you know you're staying put, buying is again, probably not going to give you much return unless you live in a high-demand area.
posted by the_wintry_mizzenmast at 8:10 AM on January 1 [3 favorites]


Dumb question -- how can it be possible that renting is no more expensive than owning?

Here in Calgary, it's because the only reason you'd buy a home is as an investment. If you can't make money on it, what's the point?
posted by sneebler at 8:17 AM on January 1


tgrundke: In true "if I knew then what I know now" fashion, I would also add that not only should you get an inspection, but you should always hire your own inspector and NEVER go with the realtor's choice: the realtor's inspector will always try to minimize the costs or potential issues found whereby if you choose your own he/she will point out every major consideration, plus give you the "if this were my purchase...." speech.

This was not my experience. We hired our own inspector when buying -- they were a reputable engineering firm with a great reputation for inspections, and they missed a bunch of glaringly obvious things (water stains in the basement, way underspec'd breaker box, bad wiring, mostly).

I'm not sure if there's a better way, but I guess you should really keep your eyes very open and ask a lot of questions. Probably helps if you read up on stuff or have a handy friend with you. Maybe you make yourself a nuisance -- but maybe you save yourself tens of $K in the process.
posted by lodurr at 8:17 AM on January 1


Re. Thorzdad's insightful if retrospectively obvious* comments on the similarity betw renting and buying: We have a large-ish lot we don't exploit and a bigger house than we ought to need; our lifestyle, storage and complement of boomerang children and their cats has expanded to fill the available space. Truth be told, though, we'd be perfectly find with a much smaller space, which we could rent for about 2/3 of what we pay to keep the house (and that's before I consider utilities).

--
*which is of course when people need to point this stuff out.
posted by lodurr at 8:20 AM on January 1


He may be a knob, but I'll listen to anyone calling out TREB. They're the ones who forced the City of Toronto to stop publishing termite spread data as it was damaging house prices. Now you basically can't know if you have them, and your entire neighbourhood would lynch you if you said or did anything public about it.
posted by scruss at 8:21 AM on January 1


Gentle reminder to Americans in this discussion: there is no home mortgage interest tax deduction in Canada; please adjust your calculus accordingly. I understand that deduction is a significant motivator to own, south of the border.

The comparison between renting and buying is also of course very dependent on the interest rate environment. The "obvious" choice in the 60s wasn't necessarily so in the 90s, and both are unrelated to the situation today.
posted by ceribus peribus at 8:23 AM on January 1 [4 favorites]


A house isn't an investment; it's an expense. You have to pay to live somewhere. With an apartment, you're renting space from a landlord. With a mortgage, you're renting money from the bank. Eventually you might recover a portion of the rented money from the bank, if you live in your house long enough and you sell at the right time... but it's a gamble with an extremely long time horizon. And of course it ties you to one spot, holding you hostage to many things beyond your control. But like all things, housing is local and every person's situation is different; rent vs buy is not the clear-cut equation that people assume it is, or that the nice lady at the bank would like you to think it is. Everybody involved in selling houses is making money from you, so it's in their best interest to make you think that it's smarter to buy - and when everybody around you is smiling and nodding and agreeing that lashing yourself to a 25-year debt is a good idea, you really really ought to stop and think about how they get paid.

On a more specific note, the housing market here in Canada is stark raving mad. 2014 is going to be an interesting year. And by "interesting" I mean "holy crap am I ever glad we are not up to our arses in mortgage debt", unlike an uncomfortably large number of fellow citizens. Including my dumbass son, who thought the nice lady at the bank was his friend and his parents were boring old sticks-in-the-mud who don't want him to have nice things.
posted by Mary Ellen Carter at 8:24 AM on January 1 [32 favorites]


I recently bought a house after renting my whole life (15 years of renting or so).

we offered to buy the last house we rented. a mortgage would've been about 2/3 of the rent, so the difference would have been insurance and amortized improvements.

or: the cash flows were roughly equivalent, and it came down to whether we wanted to be long or short the market (or inflation). if we rented and prices increased, it would push rents up every time we renewed.

if we bought, we lock in today's payments, and get to keep the inflation increases (in the form of equity and salary, which can go into savings rather than rent hikes)

or: renting is an embedded put option in case the house or the market falls apart. like with any put, there's a premium.

in our case, buying made financial sense. I suppose the point, though, is that we went through the exercise on the financial merits rather than just assuming it made sense to buy.
posted by jpe at 8:25 AM on January 1


We bought in Vancouver in 2002 before the huge madness started, otherwise it would be impossible to buy a place without being rich or facing a 90 minute commute into downtown. This led to discussions over Christmas about how Surrey is now the place to buy.
Calgary isn't much less overheated than Vancouver and I can see a correction coming up in both places. Vancouver will likely be less so (unfortunately) due to the foreign investment snapping up houses that stay empty.
For us, we bought a place that fits 2 people and a cat. We don't need a huge house in the suburbs and I hate commuting. Seconding the opinion that if you buy a big place, your lifestyle expands to fill it. Our Realtor insisted on showing us places that were $200-400k more than what we ended up buying because "you can afford it". I'd rather buy a smaller house that fits us and know I can pay it off, then worry every time the interest rate changes.
I like to sleep at night and that much worry I can do without.
posted by arcticseal at 8:53 AM on January 1 [1 favorite]


The problem with renting is that the fucking rent goes up every single year. At least a mortgage payment remains the same.
posted by kavasa at 9:12 AM on January 1 [7 favorites]


This debate is rendered moot for my wife and I by the fact that we live in Toronto. The choices are renting and doing other things (including investing surplus income) or buying a house and having no money left over for anything else.
posted by The Card Cheat at 9:16 AM on January 1 [1 favorite]


Rent versus buy report (U.S.)
posted by Brian B. at 9:24 AM on January 1 [6 favorites]


People talking past each other. Of course it makes sense to buy under the conditions specified in the FPP: a robust, rapidly and steadily growing real estate market in your area. You probably can't go wrong buying in a major coastal urban downtown area, for example, but that's why you can't afford to do it: decades of virtually certain steady increase in underlying asset value, where the physical space you inhabit is the more valuable commodity than the quality of the building currently enclosing it.

Many places have never seen that. Many have seen it only in artificially manipulated boom markets that have now collapsed (or are new boom markets that will soon collapse).

If you bought a beat up loft in NYC's Soho 25 years ago for $100,000 and stuck it out, you're a millionaire many times over now because of it. If you bought a new 3 bedroom house in Las Vegas 7 or 8 years ago for $350,000, you're totally fucked and can't sell the thing even now except at a stunning loss.

Owning vs. renting is not a question that can be answered abstractly and definitively. The question needs to be "do you feel lucky, punk?"
posted by spitbull at 9:24 AM on January 1 [24 favorites]


I haven't worked the numbers out myself, but I can believe that if one interprets the word "financial" narrowly enough, it's true that it doesn't pay to buy a house. But the claimed financial superiority of renting seems to be predicated on the idea that one would have a cash outflow every month equal to the average monthly outlay for an equivalent house (including maintainance, etc.), with the difference being religiously invested. If you don't do that last part, home ownership is clearly better (assuming you don't make a stupid or very unlucky purchase that puts you under water), since renting builds up exactly zero assets. My casual observation tells me that the vast majority of renters don't do this. In this sense, saying renting is better is analogous to saying abstinence education is the best way to reduce out-of-wedlock births: it works for certain individuals, but at the population level it only works if human nature is ignored.

Beyond that, though, the statement takes the viewpoint of status quo financial consultants as "natural" and views more personal goals as "non financial". But what if, just to pick one scenario, you want to have a familial property asset including productive fruit and nut trees, not to mention zero energy housing? You simply cannot get that by renting. And this doesn't seem to be a "non financial" preference: I'm increasing my familial wealth by doing this, and it cannot be replaced by investing in a bunch of mutual funds.
posted by mondo dentro at 9:25 AM on January 1 [5 favorites]


Also, hasn't Turner been predicting a housing crash in Canada for almost ten years? He's the James Knustler of Canadian real estate.
posted by The Card Cheat at 9:28 AM on January 1 [3 favorites]


Dumb question -- how can it be possible that renting is no more expensive than owning?

Most people only look at the one-to-one line items. I'll just use my place as an example, since I rent but there is a unit available for sale in my complex that's similar but has nicer fixtures.

My Rent: $825/month

My mortgage payment: $620/month for Principal and Interest

So this is what makes people go "omg dude you could BUY a place in your building cheaper and it'd be nicer and you'd own it at the end". However, that does not include:

Property taxes: $168/month (yes, really, our property taxes are high as hell)
HOA dues: These fluctuate but I think they just raised them to $150/month in the latest management coup
Homeowner's: Zillow estimates me at $110/month, which seems high but I dunno. (Yeah, I pay for renter's insurance but it's so cheap comparatively that I don't even think of it as a line item in my budget)
PMI: $78/month according to Zillow

That does not include such joys of shared housing as the special assessment they had to levy when our roof rotted and they had to re-do a huge chunk of it. (Ironically I didn't have to pay this because I rent even though I was the one most affected by it).

So I wind up paying $1126 a month or thereabouts for the same place.
posted by Ghostride The Whip at 9:37 AM on January 1 [13 favorites]


I was given a few rules of thumb a long time ago, and they seem to have held up.

1. Your rent should not exceed 1 weeks take home pay. If you have a partner/spouse and are both working full time... it's only the lesser of the 2 take home pays for that week.

2. To convert a mortgage into equivalent rent... multiply the payment by 1.5 to cover the various things that pop up, like taxes, insurance, broken water heaters, roofs, etc.

A house is a pile of sticks with a roof on top of it, that decays over time. I've always just thought of it as an expense, not an investment.
posted by MikeWarot at 9:51 AM on January 1


1. Your rent should not exceed 1 weeks take home pay. If you have a partner/spouse and are both working full time... it's only the lesser of the 2 take home pays for that week.

So if my partner's weekly take home pay is $2,000 and mine is $600, we should not get a place with a monthly rent greater than $600? That would still leave us with $9,800/month left over after rent. Seems like we could get a nicer place.
posted by (Arsenio) Hall and (Warren) Oates at 10:04 AM on January 1 [6 favorites]


Every situation is different, of course, and you have to look at the specific market you're in. But...

I'm always leery of financial types, many of whom are landlords or heavily invest in rental properties or holding companies, and who invariably own their own rather large homes, advocating for the benefits of renting over home ownership.
posted by GhostintheMachine at 10:28 AM on January 1 [4 favorites]


"Meanwhile most buyers are hormonal and emotional basket cases, ruled by first impressions who often decide to deal based on one 13-minute viewing (as opposed to spending four hours looking for great yoga pants)."

How sneeringly sexist. No thank you sir.
posted by ErikaB at 10:33 AM on January 1 [25 favorites]


Seems like we could get a nicer place.

They're more in the way of guidelines....
posted by lodurr at 10:39 AM on January 1 [1 favorite]


tgrundke: " That makes it very hard to say things like, "well yes, Mr. Smith, the home is very nice, but code states you cannot splice romex into knob and tube" without offending."

Well that can be legal in Canada. Usually it isn't because of shoddy workmanship but that is a workmanship thing rather than a code thing.
posted by Mitheral at 10:48 AM on January 1


1. Your rent should not exceed 1 weeks take home pay. If you have a partner/spouse and are both working full time... it's only the lesser of the 2 take home pays for that week.

Hooo boy, if I could get a place for one week's take-home pay, I'd be over the moon. Actually, I did have that once: it was a 225-square-foot studio carved out of a house, hence no soundproofing from my neighbors. It was actually in nice shape, with a new kitchen and dishwasher and great landlord. But you can only live so long in a place where "going to bed" literally means "standing up from the one chair, walking two steps, and getting into bed." Or where you can literally hear every conversation your neighbors have.

To be fair, I also had it when I was younger and lived in crappy shared houses. But that's another thing you can only do so long.

The guideline I've always heard is that your housing costs should be one-third your monthly take-home pay, which is still a stretch for a lot of people in urban areas these days, but more reasonable.

I'm saying this not to pick on this particular comment, but just as a reflection of the fact that, in a lot of places, housing costs for both renters and buyers have gotten really insane. And this means that a lot of more traditional financial advice starts to look really pie-in-the-sky and unrealistic. I mean, you need a place to live, and if the housing costs are sky-high in your area, then you just have to suck that up.
posted by lunasol at 11:05 AM on January 1


Aha. From the comment section:
a bit late, but HAPPY NEW YEAR!

For those asking, I believe “Lawn Asian” was a term used to describe the use of fake/planted imposters posing as HAM (“hot asian money”).

This tactic was/is used by realtors in HAM-fueled neighbourhoods to make the illusion of offshore money buying up properties. Think of Cam Good, who used fake HAM imposters on multiple occasions — including the infamous helicopter tours, and the young female condo buyers (who were actually employees):
http://www.theglobeandmail.com/news/british-columbia/real-estate-firm-apologizes-after-employees-pose-as-buyers-in-news-stories/article8688210/

Do a google search of ‘ “lawn asian” site:greaterfool.ca ‘, and you’ll find this term back in 2011:
http://www.greaterfool.ca/2011/03/15/pay-attention-2/
http://www.greaterfool.ca/2011/03/28/normal/
http://www.greaterfool.ca/2011/06/23/winners/

posted by molecicco at 11:34 AM on January 1 [7 favorites]


Well "don't buy into a bubble" and "don't buy if you're likely to move within ten years" should be no-brainers. However, it does not take a lot of unusual assumptions to find yourself in a place where buying makes sense.

We bought in 1992 and because we had a good cash flow situation in the 1990's paid it off in about 10 years, so we have not paid rent since 2002. Our mortgage was around $500 and we cleared the principal mostly by making double payments.

Today houses exactly like mine in this neighborhood are renting for around $1200 a month. We have very clearly saved more on rent in the years since we paid it off than we spent to buy it, including interest and insurance. We would be ahead if the house was swallowed by a black hole tomorrow and the insurance refused to cover it as an act of God. As it is we have had an extra $1,000+ per month in disposable income for over ten years and we own an asset that is theoretically worth at least $100,000 on top of that.

I have never thought of this place as an investment. It's an expense, since I have to have a place to stay, and it turned out to be quite a bargain. That should be your focus when shopping for a home. We would still be doing quite well, if not quite as well, if we had not paid it off early and were looking at eight more years of those mortgage payments.

And with that said, I would not want to be the guy who buys this house from me. The neighborhood is overvalued (I could get $100,000 for this house, but the assessor thinks I could get $150,000 which is crazy talk, but that's what I pay property taxes on). The house is now 40 years old and we occasionally have to spend some money on it. Still, all the expenses don't add up to a pimple on the butt of what the rent would be.

If you can get a deal like that, and there's a good chance you can stay put for long enough to justify the hassle of resale, buying makes a lot of sense.
posted by localroger at 11:35 AM on January 1 [1 favorite]


The other interesting part of the own versus rent debate is that a lot of the apparent profits of homeownership accrued from deliberate municipal financial mismanagement where liabilities went unfunded for the sake of the political expedience of deflated taxes. Those bills will come due and when they do you can expect the tax burden on homeownership to spike and property values to plummet (like Detroit). Renters can leave.

This is less of an issue in Canada because the political environment is less reckless than America but it is still there to some extent.
posted by srboisvert at 11:35 AM on January 1 [1 favorite]


The Canadian real estate market is fundamentally different than the States. As a percentage of income, houses are more expensive here. It sounds crazy, but there is a lot of scarcity in terms of where you can live. The big problem? Jobs. There are relatively few places in Canada where you can find good-paying jobs, and those markets tend to have very high housing costs.

Canada also did not experience a housing crash like the States did, so there is very little housing inventory (so renting, if you can find a decent place that is not too expensive) can theoretically be cheaper than buying.

Canada is also a bunch of unique real estate markets.
posted by KokuRyu at 11:45 AM on January 1 [2 favorites]


Here in the US, we bought because we want to be able to live in the city for good. Rents and house prices seem likely to continue to rise here over time because we're very centrally located, and I was afraid of being priced out, having to move to the suburbs, having to own a car, being far from the things I care about, etc. We've had a couple of Quite Large maintenance expenses in the past year, but very little for the four before that. This whole "everyone is so mobile now" thing - that's a professional-class problem. People like me don't move cross country for jobs, because we're secretaries and low-level administrators and low-level accountants, etc. And god knows the working poor don't move for jobs unless they're moving into some kind of barracks-housing for oil gigs in South Dakota or doing seasonal labor, and that's a very different kind of move - you don't have the choice about that, you do it to keep body and soul together.

If I had to live in some exurb in an anonymous new build development, I wouldn't want to bother to buy, it's true.
posted by Frowner at 12:08 PM on January 1 [1 favorite]


I worked overseas for +10 years in what would generally be regarded as a 'hardship posting' for the sole luxury of buying and owning outright my own flat. Nothing fancy; it's a small 2 bedroom flat in a nice area in my city. Yes, I have bullshit maintenance, licences, agency fees, etc, BUT I still have no regrets. I grew up with bullshit landlords; constant fear of rent increases; knowledge that UK gov't housing will place you wherever is amenable. There is an immense sense of freedom and independence that comes from ownership.
posted by genuinely curious at 12:34 PM on January 1


I was lucky and bought in Vancouver before it got too insane. But my rule for buying any place, including my most recent home, is that I need to find a place with cosmetic or temporary problems that spook off others and allow me to buy for a reduced rate. I won't buy a place if I cannot make back the cost of selling and also add a little value. So this has meant buying places that had horrible paint colours, crappy carpets, minor but very visible things wrecked by tenants, construction going on across the street, work about to start in the building, etc. I also going for really long amortizations and make balloon payments. That way, if my job tanks, I can go back to making a very small mortgage payment, but I'm barely paying anything extra in interest since I am almost making the same dent in equity each year. So I'm paying things back based on a 10-year amortization, but my payments reflect a 30-year amortization.
posted by Chaussette and the Pussy Cats at 12:51 PM on January 1 [3 favorites]


Here in the US, we bought because we want to be able to live in the city for good. Rents and house prices seem likely to continue to rise here over time because we're very centrally located, and I was afraid of being priced out

There are no guarantees. Taxes can be increased, etc.

I think what's missing in this discussion is the simple fact that houses are liabilities. By taking on ownership of a house, you are basically committing to certain kinds of risks (local tax increases, if you have a mortgage continued implicit support of the market via the tax deduction, if you buy a condo or house with an HOA you may find your fees raised due to negative economic outcomes). The only real risk with renting is that you may lose your rental (failure to renew due to lack of an offered lease, rent increase, or because the owner is planning on moving into or selling the unit); you are also exposed to varying unregulated levels of landlord quality.

For people below a certain level of financial self-control, buying a house sometimes has the side effect of creating a mandatory (if low ROI) savings plan that they pay into that they otherwise would not do if they were renting. That's a maturity issue, though, and not a good basis for a decision. The flipside of that consideration is that many homebuyers get into this cycle of infinite improvements that they would never consider if they were renting - spending more on furniture, making improvements to the house itself, customizing ... same issue.

The takeaway should be that buy-vs-rent, all else being equal, is mostly a lifestyle decision.
posted by rr at 1:08 PM on January 1


officer_fred: "On the pro-rent side, we have the costs of home repair and maintenance to consider. But, (a) are those really big enough to cancel out the equity you're getting if you own? and (b) if maintenance is so expensive, presumably landlords fold it into the rent, so if you're renting you're paying for it anyway."

I'm a habitual renter, but my parents are owners, and I've had the misfortune to need to read their mortgages. And personal financier is a hobby of mine. So I kind of know both worlds here.

Opportunity cost. People say you build wealth by buying a home, but this isn't the full story; it's more about asset allocation. You could perhaps take out an interest only loan and instead of building equity in a home, invest in a market earning 7 percent real returns, while the US real estate market generally earns 0 percent. As an example S&P 500 is up 25 percent, while US homes are up an average of 11 percent. So every dollar in home equity is usually money poorly invested.

Another type of opportunity cost is being able to move between jobs. Eligible for a promotion to manage a regional office three states over? Hope you can tell your house! During the 2008 recession, economists pointed out that underwater homes meant people couldn't afford to leave town to take a better paying job in another city, because the banks wouldn't let them short sell the house, and they couldn't afford two mortgage payments. So that was/is trapping labor in inefficient markets.

Agent fees. Real estate agent fees tend to be about 6 percent; 3 to buy, 3 to sell again later. That's a rather large chunk of your equity taken by transaction costs, paid every time you move. Agent fees, then, have a similar, less pronounced effect to the whole subprime market crisis thing. And if you're silly enough to buy a 'starter home', well, that's just another 6 percent hit coming down the pipeline when you upgrade.

Tax incentives. The standard deduction is pretty high: 6100 for a single person. If you borrow 100k for a home at 4.5%, your interest deduction in year 1 is around 4500 (and nearly zero in year 30). Property tax might bump you up a close to break even. The more you borrow, the better that tax advantage, but there's a million dollar cap on that, so that two bedroom in Palo Alto is only partially tax advantaged.

There's also a cap gains exemption, assuming you have any. But given how high agent fees are, you want to have long holding times, and the long term return rate is like zero percent after inflation, you could have just bought TIPS...

Property taxes are not fixed. In many jurisdictions, the more the house is worth, the more you pay to own it. Stocks do not have this property.

With all that, I'm happy to 'pay someone else's mortgage;' they're getting a shit deal, because renters in a healthy market can basically expect landlords to use all the theoretical advantages to lower rents to keep occupancy up.

*Assuming you don't have a variable APR mortgage.
posted by pwnguin at 1:24 PM on January 1 [9 favorites]


I think what's missing in this discussion is the simple fact that houses are liabilities.

In Canada the thinking is that houses are tangible assets that appreciate in value over time; housing prices have more than doubled (more than doubled!) over the past 10 years or so.

People talk about a housing crash but the fact of the matter is that outside of the Golden Horseshoe in southern Ontario, there is no matrix of towns and cities like there is in much of the States. Cities in Canada are either geographically isolated, or are geographically constrained. It makes moving to a cheaper exurb more difficult to do, because the housing stock is not there, amenities don't exist, jobs don't exist, and the commute is insane.

So, in many Canadian cities, at least cities with diversified economies that do not depend on natural resources (Prince George, for example, but even a city like PG has its own critical mass as a service and education hub), real estate will continue to appreciate.

And there really is no other investment out there where you earn a meaningful return on your savings.
posted by KokuRyu at 1:37 PM on January 1 [2 favorites]


you cannot splice romex into knob and tube

Hey, keep your laws off my body!
posted by yoink at 1:46 PM on January 1 [2 favorites]


KokuRyu: "And there really is no other investment out there where you earn a meaningful return on your savings."

I beg to differ!
posted by pwnguin at 1:49 PM on January 1


I think over a 30 year mortgage, houses are probably safer than your example (taking a look at peformance since 2000)
posted by KokuRyu at 1:53 PM on January 1


I think over a 30 year mortgage, houses are probably safer than your example (taking a look at peformance since 2000)

The data is probably all US-based, but it is easy to find housing index and stock prices overlaid on the same graph. Depending on when you bought and when you sold, either can be a better move.
posted by Dip Flash at 2:03 PM on January 1 [2 favorites]


Agent fees.

There are fees foe playing the stock casino, too.
posted by goethean at 2:05 PM on January 1


Here's the only difference that matters to me:

Renting: You can't freely paint, change the finishings, or landscape.

Owning: You have to paint, change the finishings, and landscape*.

*Where "landscape" may be as simple as mowing and keeping the bushes trimmed, but it's still work.
posted by IAmBroom at 2:09 PM on January 1


Owning: You have to paint, change the finishings, and landscape*.
Sez you.
posted by Flunkie at 2:14 PM on January 1 [5 favorites]


Renting: You can't freely paint, change the finishings, or landscape.

I always hear this and it has always baffled me- I've been renting for decades, and I've never lived anyplace I couldn't have (interior) painted if I wanted to.(maybe I'd have to repaint before I left, but if you paint your bedrooms paisley you're probably reainting before you sell anyway)

Hell, if I'd wanted to spend the time and money on it, I imagine I could have painted the exteriors too. Maybe y'all just rent more upscale than I do?

I dunno, I just wonder if this is a real thing, or if it's something that homeowners tell themselves in order to justify their decisions.

Also, of course if you have a HOA you might be even more seriously constrained in your landscaping/exterior paint options than if you were dealing with a landlord.
posted by hap_hazard at 2:18 PM on January 1 [1 favorite]


Without consistent, relentless annual increases in real estate values, there is no financial argument for buying a house.

That is as may be, but there are non-financial arguments for buying a house. Like, say wanting to live in a house, not an apartment. There are single family homes available for rent, but in many places, the housing stock in the rental market is very, very different from that in the homeowner market in several ways.

First, most rentals are apartments, not houses. If you want to live in a single family home, not a townhouse/duplex/apartment building/tenement, your options as far as rentals are going to be very, very limited in most places.

Second, and related to the first, in most markets outside dense urban cores--and sometimes even there--it's hard to find a rental with more than two bedrooms at a reasonable price, and almost impossible to find one with more than three at any price. The only such rentals tend to be those few single family homes that are available for rent (we'll talk about why those tend to be problematic a bad idea in a minute). This doesn't really matter at all if you're single or married with no kids, and even one kid can do just fine. But two kids in a 2BR starts to get a bit crowded, and three kids starts to get downright cramped. I know people who do it, but they wouldn't if they could afford anything better.

Third, rentals and homes for sale tend not to be in the same areas. There aren't really any apartments in rural areas, and there are relatively few single family homes available for rent. Rentals are downtown or in apartment complexes. Oh, and many nicer neighborhoods actually have covenants written into the houses' deeds that prevent them from being rented out. So while you can buy essentially anywhere you like, as long as you've got the money, there are many areas where you can't rent regardless of how much you're willing to pay. If you want to live in one of those areas--and many people do--you have to buy.

Fourth, and perhaps most significantly, those single family homes that are available for rent tend to be, well, pretty shitty is what they tend to be. I've found that with apartments, there's a basically linear relationship between professionalism of the landlord and the size of his organization, i.e., renting from a major real estate company tends to get you better maintenance and attention than renting from the slumlord down the street who manages half a dozen properties all by himself. But with houses it's a real crap shoot, and the odds are stacked against you. I'm not talking about outdated appliances and ugly wallpaper. I'm talking about plumbing that should have been replaced in the Reagan administration, HVAC systems from the Carter administration, and a roof from heaven only knows when. The insulation tends to need work. Major appliances are inefficient. The driveway needs to be repaved. The windows leak like sieves. There's water in the basement. And don't get me started about mold.

So, in essence, if you want to live in a single family home, there are a lot of reasons that you might want to buy, none of which are financial. The question isn't whether buying a house is a good investment. The question is whether you're willing to pay what it takes to live in a house that you like in a place that you like. If the answer is "No," then rent. If the answer is "Yes," then buy.
posted by valkyryn at 2:18 PM on January 1 [9 favorites]


The guideline I've always heard is that your housing costs should be one-third your monthly take-home pay, which is still a stretch for a lot of people in urban areas these days, but more reasonable.

As a practical matter, most people consider transportation plus housing as a combined cost, and the two together shouldn't exceed more than a certain percentage. As a recall it is about 45% of total income for many Americans.

That helps explain both how higher-price housing in urban areas can still be affordable (much close to many destinations, don't need a car, etc) and also the tendency of housing prices to drop the further you get towards the fringes of metro areas (if you're driving expenses are high just to get to work and other necessary places, it leaves only so much left over to pay for housing).
posted by flug at 2:26 PM on January 1 [1 favorite]


Renting: You can't freely paint, change the finishings, or landscape.

We rent in Victoria BC, an exceedingly (if you include the surrounding suburbs) petite bourgeois city in Canada. Basically, there is a stigma against renting.

There are some other considerations too:

Neighbours
Our neighbours (notably their children) behave like apes, littering everywhere.

Upkeep
You have to ingratitate yourself with the superintendent to get anything done.

General maintenance
Since our neighbours are not particularly clean or considerate, and because there are a lot of us, the place gets dirty pretty fast. The townhouses all need a good power wash. The gutters are full of holes. The lawn care people, instead of picking up discarded newspaper fliers, mow over them, creating confetti all over the green space.

We also live in an urban neighbourhood (it's an awesome place, and I'm glad we live here) so people come to our garbage area to illegally dump all sorts of shit. And then the raccoons get into it.

That said, you can't choose your neighbours. My parents, who live in a solidly-bourgeois neighbouhood, have, over the past 35 years, had 2 very nasty/scary neighbours, so there's that...
posted by KokuRyu at 2:37 PM on January 1 [1 favorite]


Here are a couple of resources that look at the transportation plus housing cost analysis:

* H+T Affordability Index

* A Heavy Load: The Combined Housing and Transportation Burdens of Working Families (PDF)
posted by flug at 2:40 PM on January 1


In Canada the thinking is that houses are tangible assets that appreciate in value over time; housing prices have more than doubled (more than doubled!) over the past 10 years or so.

People talk about a housing crash but the fact of the matter is that outside of the Golden Horseshoe in southern Ontario, there is no matrix of towns and cities like there is in much of the States. Cities in Canada are either geographically isolated, or are geographically constrained. It makes moving to a cheaper exurb more difficult to do, because the housing stock is not there, amenities don't exist, jobs don't exist, and the commute is insane.


The idea that houses are tangible assets that appreciate over time is a deliberately created mindset which has the efforts of entire professional groups behind it and the people who talk about how much they "made" on their house almost always is a partial accounting ("sales price - purchase price").

I have a number of friends in the Vancouver and Victoria real estate markets. They trot out variants of "cities are geographically constrained" or "these are the retirement areas of Canada" as explanations for the recent rapid increases in real estate values. It never occurs to ask "what changed? did anything change? then why has price changed so dramatically?"

In the bay area, for example, the equivalent of this logic is "people like the weather" - also true for Vancouver and Victoria, btw - which had all of .. well, nothing whatsoever to do with the rise (and crash) of overpriced bay area housing.

"The fact of the matter" is that bubbles inflate until they deflate.
posted by rr at 2:48 PM on January 1 [2 favorites]


hap_hazard: "I dunno, I just wonder if this is a real thing, or if it's something that homeowners tell themselves in order to justify their decisions."

Sure as heck was a real thing for me in assorted places in BC and Alberta. No painting or alterations without permission was a common lease condition. Trying to find a place that will allow, for example, a renter to run additional power to the garage to run a table saw is quite difficult. Last place I rented I had 30m of cab tire on my saw so I could run it from the garage thru a window into the laundry room to make use of the dryer receptacle. Renting when you have a dog and cat immediately cuts out vast swaths of potential rentals in any sort of tight market.
posted by Mitheral at 3:26 PM on January 1 [2 favorites]


I have a number of friends in the Vancouver and Victoria real estate markets. They trot out variants of "cities are geographically constrained"

Sorry for "trotting out" something you disagree with, but it was done in good faith. Compared to the States, cities in Canada are "geographically constrained." Why don't you try entering a dialogue instead of sneering at a viewpoint you disagree with?

It's a fact that housing prices have doubled in most Canadian markets over the past decade, while salaries and inflation have not.
posted by KokuRyu at 3:47 PM on January 1


I live in Vancouver. renting rocks. I live in a $1.2MM 3 bdrm half duplex that rents for $2900. Walk to beach, shops, doctor, dentist, vet, restaurant, high quality public elementary school . On marked bike route, cycle downtown in 15 minutes. Serviced by 7 bus routes. Served by two major hospitals in 5km radius with trauma centres and some of the best specialized surgeons in the country. I have a dog and a kid and I'll rent here as long as I can.

When you rent a house in Vancouver, there's practically no relationship between rent and selling price of property. In Point Grey you can rent a $3MM house for $3500. Condos and apartments though are closer to mirroring carrying costs, a brand new 1 bdrm condo 3 blocks from my place rented for $2300.I don't understand the economics of this but I'll happily live in a millionaire's house and have access to health, recreation, and education services based on the millionaire's address without being a millionaire myself, thank you.

My homeowner friends are jealous. They must have 2 cars + spend $600/mo in gasoline to commute + they have to maintain their homes + they have the intangible cost of long commute/fewer nearby cultural options + private school for kids. If they hadn't bought into buying frenzy (the "get in now or you'll never be able to buy" nonsense) + the quaint notion that children require yards then they'd have an appreciably better lifestyle. All in once you get past the sticker shock of rent the total outlay of us renters (especially once you factor in transportation) is way lower.
posted by crazycanuck at 3:49 PM on January 1 [2 favorites]


It's a fact that housing prices have doubled in most Canadian markets over the past decade, while salaries and inflation have not

Yes. And that perfectly describes a bubble and has nothing to do with geographic constraints.
posted by rr at 4:48 PM on January 1 [3 favorites]


I've been reading him for years, and Turner can be a bit of a-stopped-clock-is-right-twice-a-day in his prognostications'o'doom, but bigger-picture, he's spot on. If you're in or going to get in to the Canadian real estate market, I reckon you ignore what he has to say at your peril.
posted by stavrosthewonderchicken at 5:26 PM on January 1


Hah. Which I notice is pretty much exactly what I said in the 'previously' thread. At least I'm consistent!
posted by stavrosthewonderchicken at 5:27 PM on January 1


"people like the weather" - also true for Vancouver and Victoria

That's not the same weather at all. One of those two cities is sunshine and flowers 350 days a year, and the other one is Seattle.
posted by rokusan at 5:54 PM on January 1


Vancouver's housing market is completely divorced from reality. Read RBC's report on affordability. In Greater Vancouver, they report that with a 25% down payment and 25 year amortization and 5 year rate term, a representative 1500sqft, 3 bedroom detached home's ownership costs consume 87% of pre-tax median household income. Explain to me how prices are sustainable given rates are already rock bottom. Ownership costs are 41% of median pre-tax income for a median 1 bedroom condo. Now consider that this is an average for across the Lower Mainland. Want to live somewhere a car isn't necessary? Be prepared to pay even more. A market like that depends on the support of rich investors looking to park capital and/or fraudulent mortgages.
posted by [expletive deleted] at 6:00 PM on January 1


Renting can be good but if you like where you live it can be a risk.

I had a great place in a great location with a great rent for a number of years. Then, one day, I was informed that the building was owned by an old lady who died. The heirs wanted to cash out and condo-ize. So could you please indicate on this form if you want to buy your unit or kindly GTFO at the end of your month-to-month lease?

No way could I afford a condo in that location at the time, so I moved on. It was too bad but I was in a position where it didn't matter. The old ladies in the building who planned to live out the rest of their lives there, however (at low rent granted by the deceased landlady), were less fortunate.

Finances are important but not the only factor in rent v. buy!
posted by delicious-luncheon at 6:19 PM on January 1 [1 favorite]


A useful indicator to know whether renting makes more sense at any particular time than buying is to consider the price-to-rent ratio.

A high PRR signals the possible presence of a bubble or at least a higher risk of imminent price declines.

American home-buyers would have spared themselves some grief if they had kept the PRR in mind.

Maybe Canadians are smarter, but only if they take this chart as a warning.
posted by storybored at 7:06 PM on January 1 [2 favorites]


One thing I point out to Americans pretty often is that mortgages work different here. Your standard American mortgage is a 30-year fixed, right? A standard Canadian mortgage is more like an ARM. You pick an amortization (the longest available right now is 25 years) and then you pick how long the mortgage is (1 year, 2, 3, 4, 5, 7 or 10 years, different rates for different lengths... most common is a 5 year length), and if it's fixed-rate or variable-rate (variable is usually a 5 year with a lower rate than a fixed but it adjusts monthly). You make your payments based on your amortization and then at the end of your mortgage you take the leftover you owe and you have to get another mortgage. That means a homeowner with a mortgage here is more exposed to fluctuations in interest rates.

So rates here have been very low for quite a while now but if they go up (as they inevitably will at some point, since they can't get any lower really) you've no choice but to get a new mortgage at the higher rates if you can't pay what's remaining off. Garth Turner has pointed out often that many people here don't remember how high rates got in the early '80s (18%-20%!) and they're buying to what they think they can afford monthly right now without realizing if rates go up even a little bit their housing costs could quickly get unmanageable. A lot of people who bought in the past few years bought with quite low downpayments and could easily lose what little equity they have with even a slight dip in prices as well.

And someone else up the thread has pointed out you can't deduct mortgage interest on your taxes here like you can in the US. Oh, and you can't default here either like you can in the States, like "jingle mail" and just giving it back to the bank and walking away, you can't do that.

The federal government absolutely had a big hand in the Canadian bubble by dropping downpayment requirements to 0% down for a while there in the mid-to-late 2000s along with extending amortizations to 40 years. They pulled it back when the bubble inflated, to 30 years and now to 25, and up to a 5% downpayment but it was long enough to do the damage it's done. When the recession hit in the US late 2008 housing prices here started to dip noticeably as well and by spring 2009 they lowered interest rates right down and prices spiked back up (Turner's posted charts showing the dip-then-spike).

It's just not sustainable and I think it's going to hurt pretty bad in most places in the country when the market finally adjusts.
posted by dotComrade at 7:19 PM on January 1 [2 favorites]


A useful indicator to know whether renting makes more sense at any particular time than buying is to consider the price-to-rent ratio.

Price to rent is reasonable metric, and I cited the Case Shiller above, which is useful for US buyers in calculating part of that. However I don't know of any particular residential rent index that buyers would use to to perform your suggested analysis. It's pretty rare for someone to be given the choice of buying a home outright for price X, or renting an identical unit at price Y.
posted by pwnguin at 7:30 PM on January 1


Don't forget that Canadians generally don't have to pay that absurdly abusive 6% real estate commission which is effectively a deadweight tax on every single RE transaction in the US. Add that into the equation and home buying looks even worse.
posted by RandlePatrickMcMurphy at 7:41 PM on January 1


Your standard American mortgage is a 30-year fixed, right?

Was before the aughts mortgage fiasco, still considered the gold standard. Among other things it allows the early payoff plan where any extra you send the holder goes straight to the principal, damn the interest structure.

A standard Canadian mortgage is more like an ARM. You pick an amortization (the longest available right now is 25 years) and then you pick how long the mortgage is (1 year, 2, 3, 4, 5, 7 or 10 years, different rates for different lengths... most common is a 5 year length), and if it's fixed-rate or variable-rate (variable is usually a 5 year with a lower rate than a fixed but it adjusts monthly). You make your payments based on your amortization and then at the end of your mortgage you take the leftover you owe and you have to get another mortgage. That means a homeowner with a mortgage here is more exposed to fluctuations in interest rates.

That "balloon" scheme is illegal in the US because of the Great Depression, which was caused in large measure by people being unable to make their balloon payments by securing new mortgages.
posted by localroger at 7:41 PM on January 1


Oh, how I hate Garth. He actually lives quite close to me, in an area where his statement "renting is always cheaper" is so obviously wrong and has been wrong for well over a decade that it just shows how out of touch he is. I live in a pretty small house I can easily rent out for well over a $1,000 a month more than my mortgage, insurance and annual maintenance costs. But, good news! My five person family can rent for cheaper than our current place - as long as we live further from public transit, live in a one bedroom/one bathroom basement apartment, and pay for electric baseboard heating.

If he can make such inaccurate sweeping statements about an area he has been intimately familiar with for thirty years (that is as long as I have known about him - he has probably lived here longer) then how accurate can his other predictions about what he seems to think is a monolithic Canadian market.
posted by saucysault at 8:23 PM on January 1 [2 favorites]


This is also pretty much the same blog post he has written every December for the past five years. Look them up on the right of this blog post; every December he definitively states that THIS is the top of the market and next year housing in Canada will crash. At this point, smart people are reading Garth and doing the exact opposite of what he recommends...
posted by saucysault at 8:29 PM on January 1


Midtown-ish Toronto prices are insane but I can't see how it's going to drop (relative to the rest of the country) because of the huge wall of huge condos lining the lakeshore. The young couples that inhabit them are having kids, fuelling crazy competition for single family dwellings anywhere near the core.
posted by bonobothegreat at 8:36 PM on January 1


I'm torn. I've read Turner for years, since he started the blog, and I think he's right in the aggregate; housing is overpriced and must eventually fall. But I also just used a portion of a fairly large inheritance to buy my first house. Ironically, the inheritance was inflated because it included the proceeds from a house on the West side of Vancouver, and I bought in a Cold Small Prairie city.

I'm over 50, and I've only ever lived in apartments, usually on a grad student/adjunct/sessional stipend, and normally in very expensive cities. Under those circumstances, renting is awful, and precarious; you are one rent increase or flood from eviction. I've rented in the last decade in a smaller market on a professional salary, and it's still not great: as valkyryn and others have pointed out, rental offerings are limited in types and vary wildly. Rental houses are either badly maintained or stupidly expensive -- often both.

I'm in an odd position: I am mortgage free. I am NOT thinking of this house as an investment, but as a chance to live in a house, with all the joys and pain-in-the-rear troubles and expenses that entails. Although I'm mortgage-free, I still need to pay taxes/heating/insurance/repairs/maintenance/renovations, which will easily rise to the cost of my old rent.

But it's a life choice. I was living in an apartment on the top two floors of an old character house, in a very cool and funky neighborhood. I loved it and stayed there for years: the landlords were wonderful, and the unit was large and quite beautiful. But I had little storage space, no garden access, no parking and little privacy; not enough cupboard space in the kitchen; not enough natural light anywhere. Lousy closets. A weird bathroom design.

The house is a revelation. It's beautiful, comfortable and bright. I have space, storage, an uncluttered vista, and quiet. I have a basement (a delight, after jamming everything in closets or under beds for decades) and a garden. I have a fireplace. I have a garage. I have a separate study and a studio. I have a guest bedroom and guests to fill it. I can buy a dog. I can plant fruit trees, build a deck and install a water garden. I know what my costs will be, and they will be stable and predictable. And while I may be forced to sell by circumstance or choice, I will never again have a landlord tell me that I have to vacate the premises by the end of the month. I will never again have to live with builder's beige. I will never again have to hunt for three months to find a place that takes cats. I will never again have to pay for substantive repairs to a property I don't own. I will never again have my housing costs triple in a year. I will never again have to buy my deadbeat landlord a new fridge, or have to pay for a plumber to fix someone else's frozen pipes.

I could not rent what I have for a comparable cost, although I could rent something to live in (half the size, no kids no pets no painting) for much less.

I'm pretty sure it's worth it. I could be wrong.
posted by jrochest at 9:15 PM on January 1 [4 favorites]


So, in many Canadian cities, at least cities with diversified economies that do not depend on natural resources (Prince George, for example, but even a city like PG has its own critical mass as a service and education hub), real estate will continue to appreciate.

Real estate can't continue to appreciate while incomes stay stagnant without throwing up massive roadblocks in front of the local economy (i.e., people who've decided to pay twice as much as their house is actually worth won't have any money left over for anything but mortgage payments). It just isn't possible in the long term without sending huge numbers of people down the road to bankruptcy. Canada is not different from the U.S. in this regard.

And there really is no other investment out there where you earn a meaningful return on your savings.

You're making the assumption that housing is such an investment.

It's a fact that housing prices have doubled in most Canadian markets over the past decade, while salaries and inflation have not.

Because of cheap money and not much else.
posted by one more dead town's last parade at 9:40 PM on January 1 [2 favorites]


At this point, smart people are reading Garth and doing the exact opposite of what he recommends...

Probably not. Garth Turner is unusually abrasive, at least in his blog posts, but there's no reason to think that you should be bullish on Canadian housing when Canadians don't make much more money than they did ten years ago. The price of a thing cannot float indefinitely away from the ability of the buyer to pay that price.
posted by one more dead town's last parade at 9:46 PM on January 1


I'm also kind of amused by the "everyone wants to live here, so housing prices will go up forever" line of thinking; it doesn't make sense. Toronto's great, but if you want a better example of a place where "everyone" actually wants to live, you should look at Miami. And guess what happened there?

Current temperature in Toronto: 5°F/-15°C
Current temperature in Miami: 75°F/24°C

posted by one more dead town's last parade at 9:49 PM on January 1 [1 favorite]


I will never again have a landlord tell me that I have to vacate the premises by the end of the month. I will never again have to live with builder's beige. I will never again have to hunt for three months to find a place that takes cats. I will never again have to pay for substantive repairs to a property I don't own. I will never again have my housing costs triple in a year. I will never again have to buy my deadbeat landlord a new fridge, or have to pay for a plumber to fix someone else's frozen pipes.

I am not sure where you have been living before Saskatoon but I don't know of anyplace where those things are actual issues renters face unless they are complete pushovers. Most Canadian cities don't allow rent tripling. In fact most have pretty serious limits on annual rent increases. Substantive repairs are a landlord issue. Even here in United States. You can buy a landlord a fridge if you want to, hey free world after all, but if you have to replace one because you landlord isn't fixing it almost every single rental market allows you to knock the cost off your rent. Ditto for plumbing emergencies or other major repairs. Unless your lease is week to week you are probably entitled to at least two months notice (true in Chicago, most Canadian cities, and in England).

I get that you are having a great time home owning but unless you were living in some crazy part of the world your description of the problems of renting are not problems people who know rental laws will have. I've been a renter my entire adult life in 7 different cities, 3 different countries and somewhere around 20 different places. I've had good and bad places, good and bad landlords and never experienced anything even close to the picture you have painted.
posted by srboisvert at 10:03 PM on January 1 [1 favorite]


Okay: I'm over 50. I've been a tenant my entire adult life. I've lived in Toronto, Vancouver, NYC, London (UK) and Paris. Most of these places have some kind of rent control. Saskatoon does not. Because Saskatoon has no rent controls of any kind, landlords could and did raise rents by massive orders of magnitude once the boom set in, and they certainly did. In the specific instance I'm talking about, I rented a 2 bedroom in August 650 a month. Two months later it went to 850; two months after that, it went to 1200. In March, I was told that the property was being submitted to the board for condo conversion: I could either 'buy' my unit or pay 1850 a month. Not *quite* tripling, but only 150 shy. I left, of course, but it had taken me 3 months to find a place that would take a single cat, so I didn't have many options.

I'm a middle-aged non-smoking, non-drinking female professor who is remarkably well paid. That didn't help.

London and New York had their own issues: yes, 'key money' is illegal, but try to find a place without paying it in either city.

Saskatoon requires one month notice on a month-to-month: so does Vancouver.

As for the rest: yes, your landlord is supposedly responsible for his own property, but he doesn't live there. If something vital (water, sewage, power) breaks and you're going to wait 3 weeks for it to be fixed, you repair it yourself and try to recoup the cost. Ditto with the continually broken fridge: after a while it was cheaper to buy a used one and just leave it there than to deal with rotting food.
posted by jrochest at 11:23 PM on January 1 [4 favorites]


And yes, the worst of these things happened in Saskatoon in the past 5 years, and not in most of the better regulated places that I've lived in -- but they happened, nonetheless.
posted by jrochest at 11:37 PM on January 1


The low cost of borrowing certainly drives up prices in hot Toronto markets but it also seems as if rich boomers are willing to shell out cash in order to keep their kids (and more importantly their grand kids) close at hand. I can't figure out any other mechanism by which so many young families can afford to purchase run down homes for $800K and then embark on a year long renovation before moving in.
posted by bonobothegreat at 11:51 PM on January 1


> "I still need to pay taxes/heating/insurance/repairs/maintenance/renovations, which will easily rise to the cost of my old rent."

OK, I've seen this sentiment several times on this thread, and it tallies neither with my experience nor with what would seem to be economic logic. (I understand the particular poster I have quoted was not using this as an argument against home ownership, although some others have.)

In terms of my experience, I've both rented and owned, and the costs of all those things combined were vastly less than the cost of renting.

In terms of economic logic, how is it even possible? If rent were less than the basic cost of maintaining a place, no one would be a landlord; it'd be a money-losing proposition. My general understanding, however, is that being a landlord is often pretty profitable.

While I understand the economic argument against home ownership, I think it's been somewhat overstated. Monthly money saved socked away into an account plus the value of the home can in many cases be entirely comparable to keeping your savings plus paying monthly rent forever.

It really more comes down to the specific details of the situation and preferences; some people live where housing prices are effectively out of reach, some people live where it's a reasonable, if major, purchasing option. Some people dread being stuck with a house they can't sell and forced to move, some people dread being kicked out by their landlord. Some people dream of painting the walls and remodeling the kitchen, some people don't much care about that.
posted by kyrademon at 1:01 AM on January 2 [2 favorites]


unless you were living in some crazy part of the world your description of the problems of renting are not problems people who know rental laws will have.

I'm sorry, but that's nonsense.

The thing is that many landlords, particularly at the lower end of the rental market but not at all limited to it, will attempt to get away with screwing you every chance they get. Even if it violates the terms of the lease or applicable laws. So you have to hold their feet to the fire, frequently including taking them to court. And sometimes you'll lose, because landlords are the ones who write the terms of residential leases, so the terms are always favorable to them. Taking your landlord to court every single time he doesn't play ball isn't a productive way of spending your time and will almost certainly be more time and trouble than it's worth.
posted by valkyryn at 2:24 AM on January 2 [6 favorites]


unless you were living in some crazy part of the world your description of the problems of renting are not problems people who know rental laws will have.

I disagree. That was similar to my experiences renting at the lower end of the market, as a student and back when we were poor. Renting as a middle class person in a not-crazy market is fine, you have a wide selection of places managed by professional landlords, things get fixed, there are no issues. At the crappy end of the market, this is not the case and landlords will routinely ignore the law, either deliberately or out of ignorance.

But I also just used a portion of a fairly large inheritance to buy my first house.

That changes everything about the buy/rent calculation (as it obviously did for you). I've known several people who had inheritances or trust funds or windfalls, and in that case it's a much more straightforward calculation about mobility and quality of life and so on. It also lowers the transaction costs of buying significantly (no loan origination fees, you can choose to ignore things like inspections that a bank might require, or to buy a fixer upper that a bank would not loan on), and there are sometimes big advantages in making a cash offer. It's a totally different situation, and hard to compare directly to the person who would be making 30 years of mortgage payments.
posted by Dip Flash at 6:20 AM on January 2 [2 favorites]


Property taxes: $168/month (yes, really, our property taxes are high as hell)

HAHAHHA

HAHAHAH

HAHAHAHAHHA

OMG.

I'm buying a house in New Jersey.
posted by MisantropicPainforest at 7:09 AM on January 2 [4 favorites]


And yes, the worst of these things happened in Saskatoon in the past 5 years, and not in most of the better regulated places that I've lived in -- but they happened, nonetheless.

Just a cursory look and I find this which shows that half of what you complained about was not allowed under Saskatchewan law. Saskatoon most definitely does have limits on the frequency of rent increases even on month to month leases.

You might even be able to recover the money from the illegal increases you went along with.
posted by srboisvert at 7:44 AM on January 2 [1 favorite]


Most Canadian cities don't allow rent tripling. In fact most have pretty serious limits on annual rent increases.

In Toronto some places are covered with rent control, but an increasing amount are not. I don't think I have ever known Toronto to have a vacancy rate of more than 1%, creating an obvious power imbalance. Even with rent control, it only applies to current tenants; in between tenants the rent can be reset to any amount by the landlord. There is also the problem of what the law allows, and the reality that enforcing those rights creates a burden on the tenant in terms of time, money and stress.
posted by saucysault at 8:52 AM on January 2


The low cost of borrowing certainly drives up prices in hot Toronto markets but it also seems as if rich boomers are willing to shell out cash in order to keep their kids (and more importantly their grand kids) close at hand. I can't figure out any other mechanism by which so many young families can afford to purchase run down homes for $800K and then embark on a year long renovation before moving in.

A lot of the Boomer parents are borrowing against the overinflated value of their homes to provide these down payments. That's fine as long as their assumption that they will be able to sell their house in the future for at least what they could sell it for today holds true. But that's not a great assumption to make.
posted by one more dead town's last parade at 9:03 AM on January 2


kyrademon: "In terms of economic logic, how is it even possible? If rent were less than the basic cost of maintaining a place, no one would be a landlord; it'd be a money-losing proposition. My general understanding, however, is that being a landlord is often pretty profitable."

I don't believe landlording generally is very profitable if you buy and hold. A lot of my landlords also ran maintenance / construction companies, and treated the rental properties as a reliable place to bill hours (mostly between tenants). There are, however, plenty of people who try their hand at the landlord game, and plenty of people on TV trying to convince you that it is so you'll buy their advice and seminars, but a lot of them focus on flipping.

A lot of my own argument against residential housing as an 'investment' it is the parts you can't directly account for in online spreadsheets. I moved from Kansas to Oregon to take a job much better for me professionally and financially. My coworker did the same thing 7 years ago, and only closed on his house three states over a few years ago. That's a long time to pay rent and a mortgage.

But to bring this back to the post at hand, I really don't understand the Toronto market. Metro Toronto only has like 2.5m people, and doesn't have any companies growing like crazy that I know of. What's driving the boom? Is it just the closest place to America for people who can't immigrate?
posted by pwnguin at 10:02 AM on January 2


There has been a sustained boom in population in Canada/Ontario/GTA. It is projected to grow at least 25% in the next 25 years. Most of that Ontario growth will be in the GTA that has a significant legislated greenbelt.
posted by saucysault at 10:48 AM on January 2


Toronto is Canada's NYC.
posted by Mitheral at 10:59 AM on January 2


On rescanning the many thoughtful comments, it seems to me that a very simple thing that subsumes a lot of them is this: Don't think of your housing as an investment. It's a material need. So assess the life-cycle costs for the kind of living environment you aspire to have, and spend your money accordingly. For some, renting will work the best. For others, there's no option but to buy. But the blanket statement that there's no financial argument for buying is bunk.

I still think it's absurd at some level for any financial maven to advocate not buying property. Our entire political-economic and legal system (following British common law, I think) is based on the ownership of property and the privileges pertaining thereto. So my class warfare lenses see these statements as more like "oh, you silly common folk--don't you know home ownership isn't for you?". I know that's not the rational aspect of the discussion (my first paragraph on life-cycle costs is rational). But that's my usual first reaction to the Turners of this world.
posted by mondo dentro at 11:04 AM on January 2 [3 favorites]


In terms of economic logic, how is it even possible? If rent were less than the basic cost of maintaining a place, no one would be a landlord; it'd be a money-losing proposition. My general understanding, however, is that being a landlord is often pretty profitable.

In Calgary, for ten years in a row, the total number of rental apartments has gone down due to condo conversion. Despite vacancy rates being at about 1%. Despite 5,000 new multifamily homes being built every year, basically every large multifamily rental building in the city was built in the 1980s or earlier.

In Toronto, Vancouver and Calgary, fewer than 5% of all homes are built for the rental market, despite ~1% vacancy rates.

Meanwhile, home ownership has gone from the pretty steady ~58% rate it was from 1971 to 1996 up to 68%, 65% and 74% respectively. In the US historically, the home ownership rate was about 62% in 1960, climbing very slowly to 64% in 1996 (the mortgage tax deduction makes sense as a base reason why a couple more percent of people own homes in the US). The home ownership rate spiked from 64% in 1996 to 69% a decade later, right before the bubble burst. (Rates have since dropped to 66% in the US.)

This suggests to me that either all the professional property management businesses whose day jobs are renting out apartments have done the maths wrong and concluded they cannot profitably build new rental buildings incorrectly, or they are perhaps smarter than the amateur randos buying some condo to rent out as an investment.
posted by Homeboy Trouble at 11:32 AM on January 2


Yes and if you've ever been kicked out of your apartment who whatever reason that the landlord wills, you'll be buying property real quick. Nothing like getting a phone call saying 'honey, we are getting kicked out of our home'.
posted by MisantropicPainforest at 12:44 PM on January 2 [1 favorite]


Metro Toronto only has like 2.5m people

6 in the GTA. 2.5 is the City of Toronto, which now includes some old suburbs.

What's driving the boom? Is it just the closest place to America for people who can't immigrate?

Massive immigration from all over the world, especially south and east Asia. Including lots and lots of people who actually intended to go to Canada and weren't trying to get to the US.
posted by ROU_Xenophobe at 1:14 PM on January 2 [2 favorites]


ROU_Xenophobe: "6 in the GTA. 2.5 is the City of Toronto, which now includes some old suburbs."

Sorry, I wasn't paying attention and confused Toronto and Vancouver. Metro Vancouver has like 2.5m and apparently is similarly booming.
posted by pwnguin at 2:01 PM on January 2


lots and lots of people who actually intended to go to Canada and weren't trying to get to the US.

For a couple decades, we've had a special "investor class" visa route for the wealthy (net worth of at least C$1,600,000 and invest C$800,000 in Canada). The program is on hold at the time being, and it's hard to say if the number of people who came in on it were enough to be a big factor in Toronto prices. Seems like lot's of would-be home buyers harbour that opinion though.
posted by bonobothegreat at 2:10 PM on January 2


Don't think of your housing as an investment. It's a material need.

Put another way, houses are things you buy. You don't buy things with them. They're expenses, not assets.

I still think it's absurd at some level for any financial maven to advocate not buying property. Our entire political-economic and legal system (following British common law, I think) is based on the ownership of property and the privileges pertaining thereto.

But see, the main financial benefits of owning property only start to accrue when you have property that other people are paying you to use. Simply put, houses are expenses if you live in them and only become assets if someone else pays you to live in them. Being a landlord is an entirely different financial analysis than homeownership. It's also something you can only do if you have sufficient assets to buy a house you're not going to be living in.
posted by valkyryn at 2:21 PM on January 2 [1 favorite]


"expense" is not the opposite of "asset"; "liability" is better. And IMHO, home ownership, from the financial perspective, brings all three into play. Once you buy the house, you have the asset, i.e. you have financial control over that piece of real estate (don't forget the land!). This asset may appreciate or depreciate over time. And of course you can buy stuff with it; that is trade it for something else of value. You probably also have a liability, the mortgage. Servicing that mortgage could be considered an expense, as can maintenance and taxes.

You could even be renting and have an asset - if you have a lease agreement at below-current-market-rates and it allows you to sublet, you have something that can be traded for money and you can make a profit - that lease agreement is an asset.

The calculus of rent-vs-buy is complex (thanks US tax code), as has been pointed out in many fine comments in this post, and the financial aspects are but one dimension. I've done both and consider both to be valid primary-shelter options based on circumstances. YMMV.
posted by achrise at 7:07 PM on January 2


valkyryn: "Put another way, houses are things you buy. You don't buy things with them. They're expenses, not assets."

This month's rent is an expense, next month's is a liability. Mortgaging a home is simply trading that liability and assets for a different liability and a corresponding asset to offset the original liability and some home equity.

I don't see why people think accounting is so complicated!
posted by pwnguin at 7:33 PM on January 2 [1 favorite]


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