I wrote an article about investment diversification for my friends over at Canadian Budget Binder. Read here: Understanding Investment Diversification.
I suspect some people are going to take it the wrong way and think I am suggesting that buying a home to have a safe place to raise your family is a bad idea. If you can make a decent down payment, plan to live there for the next 10 years and can honestly say that you wouldn’t be stressed if real estate values dropped 10-30% over the next few years, then I say go for it.
This isn’t a site about real estate, so I don’t really want to debate the issue too much, but these stats scare me:
- 70% of Canadians now own real estate (the highest level in history created by artificially low interest rates).
- Only 53% of Canadians say they have a long term investment plan for their retirement. (source CTV News)
- The market will be flooded with houses by the year 2030 as retiring baby boomers down size. (source CNBC)
- Toronto is building more condos than New York or Chicago and the buildings are already starting to fail. CBC News – Throw away buildings.
- In 1980, the ratio of household debt to personal disposable income was 66%; that ratio recently passed 150%. (source Stats Can)
So, I think houses are great to own, but I think people would be well advised to diversify into other types of investments if they want any real growth over the next few years.
You make some really good points here Troy, and another down side to the housing market is the new mortgage rules that come into affect in July. The new rule for lowering the max amortization to 25 years will really squeeze first time buyers and people with low equity looking to re finance.
And I’ve noticed in my neighbourhood lots of for sale signs saying price reduction, I think the correction in prices has begun. Just look at the Long Term picture before you buy.
If you click on the link I have on the CBB website, I have the new mortgage rules. A 5 year shorter amortization will have the same effect as a 1% higher mortgage. I have also read that 1/3 of the buyers are first time buyers using 5% down.
That video on the Toronto condos is shocking! The buildings are only expected to last 5-15 years and there are already class-action law suits forming. Remember what that did to the price of real estate during the leaky condo crisis in BC?
I haven’t seen the video yet, but I thought all those lessons were learned with the Vancouver leaky condo crisis. It always seemed like a bad idea to me to buy a condo. Your buying a structure that will deteriorate over time, the land is where the real value is. I recently went to an open house, it was a one bedroom waterfront condo on leased land owned by the city. The realtor assured me it wouldn’t be a problem when the leased expired in 2036, but he did suggest I might want to look over the several hundred page contract explaining the terms of the lease. I’m sure it would be all good A? $599k for a one bedroom seem’s like a steal !
That old chestnut about “renting is like throwing your money in the fireplace” just isn’t true. If you have a 30 year mortgage over 90% of your mortgage payment is going to interest payments, so aren’t you pretty much renting anyways?
CMHC has just said that the cost of buying a condo in Vancouver is $773 a month more than renting the same unit. I would rent and invest the $700 a month. Liquidity will be king in the next decade. You don’t want to be stuck in a deteriorating condo that you can’t sell in a falling market.