Depending where you live, real estate might be pricy to buy. Should you buy? Would renting be smarter? What are your considerations and alternatives?
Depending what side of the border you live on, buying a home could be a dream out-of-price or within reaching.
When American home values entered shaky ground in ‘06, the average home prices in Canada and the United States were on nearly equal footing. Fast-forward nine years and the gap between our national prices is at a record high.
Canadian home prices are considered untenable by many housing authorities the world over. Why? Today we have a national housing price in Canada that’s nearly 70% over what our southern neighbors pay.
In the USA, the median average home price is roughly $189,000 for 2014. In Canada? Nearly $432,000, thanks to the average home price in Vancouver and Toronto being a cool million bucks (or so) these days.
The big question
As a result, a more and more common question Canadians have to answer is, should we rent or should we buy? At $189,000, for many Canadians, it’d be a no-brainer. At $432,000, it’s a daunting prospect. At $900,000? Phew. That’s some heavy mortgage living. You know the French etymology of the word “mortgage”? It meant “dead pledge.” That’s ominous for a large mortgage, isn’t it?
If you’re looking for a new home and you’re debating buying versus renting, there are far more factors to consider than just the sticker price of the home.
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How long are you staying put?
It’s easy to get swept up in the romance of the house-flipping shows on HGTV. Guy buys house, guy paints house, guy makes a mint. This tends to be pretty unrealistic unless you’ve bought the home for a steal.
Instead, you run a high risk of losing money if you sell in less than 5 or 10 years, thanks to market fluctuations and the like. Locally, one homeowner was outraged that he bought a $1.5-million apartment then sold it with a loss of a quarter-million, thanks to the rest of the condos being bought and sold below cost by the city. But if he’d held on for a couple more years, he likely could’ve made money.
Real estate is a long game, not a short one, and played over the long-haul it tends to be highly unlikely you’ll lose out. Hedge your bets and sell in a short-game? That may not be the only thing that gets shorted.
Got extra moolah?
Your property’s sticker price is only part of your concern. What about the closing costs? How about any improvements you’ll need to make right away? The costs of moving? How about home maintenance costs? What about an emergency fund?
If you can’t afford today to fix the roof, the plumbing, or anything else that could go in the first five years, then you’re getting into a dangerous situation.
An ill-maintained home is an investment laid to waste. Your savings will be critical if you’re to successfully own and maintain your home to the level that it takes to keep your investment strong.
Have you Imagined the worst-case scenario?
Is your job absolutely, completely secure? Probably not. After all, whose really is?
What if you lost your job? Would unemployment benefits cover your living costs? What if you got injured? Would your home still “work” for you without extensive improvements? What if…?
We want to believe that only good times are ahead for us, but people lose their homes all the time because they buy under an ideal situation and the situation changes. You’re talking about 5 to 20 or more years of your life. You’d better be imagining “what ifs”.
Have you considered creative alternatives?
Renting a home allows for freedom that homeowners can’t even dream about. For example, elderly or other folks who can travel for half the year could downsize their belongings, rent for half the year, and store their belongings for the other half the year. Paying movers to pack it up, stick it in storage, and then paying the movers to move it all to a new home will likely come in at a fraction of the cost of leaving a vacant space behind while travelling.
There are all kinds of alternative home scenarios that make sense, from building a “tiny home” for $30K and installing it on a patch of someone else’s lawn through to taking chances on housesitting for a prolonged stays.
Home-ownership is a huge commitment for anyone, and if you’re not sure you’re ready for it, you should hold off until you’re really sure you’ve got income security and you’re in a place you can see yourself committing to for a decade or more.