The Case against Buying a Home

The Case against Buying a Home

Scott Barlow, Globe and Mail market strategist

February 18, 2020

The Wealth of Common Sense finance site effectively summarized the cases for and against buying a home in a January 24th post. The information focuses on U.S. investors but might be even more important for Canadians – the domestic real estate market is again surging higher from already-lofty levels in major centers.

Surprisingly, the author Ben Carlson doesn’t mention the most often cited reason for buying a home – you’re paying your own mortgage, not someone else’s – but the remainder of the pro-homebuying arguments are familiar. Stability, financial planning, the ‘psychic value’ of owning your own place and the potential for price appreciation are all mentioned.

The extended rally in domestic home prices has conditioned Canadians to believe that residential real estate is a foolproof path to wealth, so Mr. Carlson’s anti-homebuying argument is likely to have more impact.

Canadians who would never consider borrowing money to buy stocks rarely have issues borrowing five to 10 times of their household income to purchase a home. The word ‘leverage’ is not often used to describe mortgages but that’s what they are. As Mr. Carlson writes, buying a home is “a leveraged investment that can work for or against you in big ways.”

It’s also the case that just because buying a home has been remarkably successful as an investment over the past decade, it doesn’t mean this bullish trend will continue. Mr. Carlson doesn’t think a home should be viewed as an investment at all, “A house is not an investment but a form of consumption.”

The future path of Canadian home prices is dependent on so many different factors – interest rates, economic growth, the continued tolerance of near-record household debt levels, demographics, immigration and commodity prices just to name a few – that I’m not about to pick sides. I do think it’s a good idea to go through the case against homebuying to be comfortable with the risks before making the plunge into the real estate market.

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