Recently, I received this question:
It seems to me that the central question at its heart is whether it is wiser to buy or to rent a house in Greater Victoria. If you boiled down all your blog entries to form one succinct main point, what would it be?Now this is no way reflective of the questioner, but man-alive I was left scratching my head at how to even begin answering this question. Not one to overlook a challenge, I decided to give it a shot. I will apologize in advance to the questioner because I think I will not only answer the question, I'll over answer the question leaving more questions than answers in result. Confused yet? Me too.
I wish I could simply answer the rent versus buy question and be done with this. But it's not that simple and I don't want my writing to be confused with advice giving.
My wife and I choose to rent because we have never owned a home, don't want to have a mortgage of $400,000 or more and don't like the properties we see, right now, in the price range we're comfortable with financially. We get better value and quality of life out of renting right now, but we don't want to rent forever. We think home ownership is an important part of long term financial planning. We're patient, and like to think of ourselves as financially prudent, but we recognize that our circumstances can't and shouldn't be universally applied to everyone around us.
In reality, there is no central thesis here at HHV. But we do seem to do three things, at least we try to do three things, consistently:
- Provide accurate, up-to-date, un-spun statistical information about the Victoria real estate market. We're grateful to the people who give us access to this information.
- Take the local media to task for lazy journalism that reads like "advertorials" far too often.
- Provide a forum for discussion on real estate related topics, usually applied to the local market with a completely different tone than found elsewhere. Some call that tone "bearish," I prefer to think of it as <sarcasm>bitter, angry, basement-dwelling renter.</sarcasm>
- If you can afford it when interest rates go up (think historical norm levels 6.5%ish), know you can live in it for a long period of time (think 7 years minimum) and will be comfortable seeing its market value drop (who knows, but think 15%ish just to give yourself a starting point of discomfort) then today can be a good day to buy a home. Note that I say "can be" not is. No one but you can decide if it "is" because your circumstances and comfort levels are very different than theirs. Please also note I'm not saying the market value will drop, but don't you owe it to yourself to recognize that it can drop and you should be comfortable with a drop if it happens?
- Renting provides an opportunity to get a better product in a better location than buying right now in Victoria. There will always be people who can point to a particular property and say "it's cheaper than rent" but it's usually an incomplete comparison or a product I would never want to find myself living in for a long time.
- Low-down, extended amortization mortgage products are dangerous and bad for people to lock themselves into. The advent of 5% down and 35 year amortizations is bad for our economy, bad for household finances and bad for the taxpayers on the hook for any defaults that occur in this segment. CMHC insured mortgages should be avoided wherever possible, IMO. Unfortunately, for the vast majority of Victoria first time buyers, they are a necessary evil. Proceed with caution.
- There are no crystal balls, only probabilities. Beware the commentator who says they know where prices are headed (on either side of the spectrum and including the ones in the mushy middle). We prefer to focus on trends and then look for economic indicators that may or may not point to a trend change. Past performance does not guarantee future performance and anyone who points to past performance as reassurance for wariness should be obligated to use this disclaimer.