Just recently I received an article to read written in the Globe and Mail about why I should buy a house rather than rent. Of course I knew this was a ruse because I’ve written many times how, in cities like Toronto or Vancouver, renting is much more affordable and financially responsible than buying. If anything, this email succeeded because I’m writing this blog post as a response.
When I read published articles about real estate in mainstream newspapers it always reads like real estate porn. Yeah that’s right. These articles are sexy real estate marketing ads used to stir up the public’s lust for houses and make our loins moist for hardwood flooring. Perhaps my pheramones don’t kick in like most people who pick up their phone to engage in inappropriate behaviour with their real estate agent, but for me I’m totally turned off.
I’m not against buying a house, but it really depends on market conditions and my wants in life. When houses require 75% of your gross income in Toronto and 81% of gross income in Vancouver, then I wouldn’t be doing my due diligence of preaching how to become financially independent if I kept shoving real estate down your throats. If I did, I wouldn’t be writing to tell you how to make yourselves financially dependent, but instead how to play S&M with your house.
Make You Feel Comfortable
“Almost exactly three years ago, I bought a house in downtown Toronto. It was one of the hardest things I’ve ever done… But the market didn’t crash—instead, the housing gods stepped on the gas. Even with the recent cooling in Toronto, my cozy townhouse is almost certainly worth 40% more today than when I bought it.”
Never go to bed angry. That’s what a lot of people say if you want to live a happy life. Well in the realm of real estate, when you’re trying to sell people on real estate and you want to be happy, you don’t want to go straight into the selling, but rather you want to make the person feel comfortable. That’s the first step to being a really good salesperson. Hey, I know. I’ve been in a few negotiations to buy a car and I know the salesperson likes to butter you up just before she puts the knife through you.
By telling the reader the buyer has seen an increase of 40% after the peak April in housing is a testament to how secure an investment a house is. “Hey the markets dropped 20% from the top! I’m still up”. Who wouldn’t want to know that even market corrections still make you money?
“In hindsight, buying my house was the right thing to do, but not because the market happened to catch fire after I did. It was the right thing to do because, after years of renting, I wanted a place of my own that I could pay off before I retire.”
You got me there. I can never call my rental place my own. There’s no way that I can paint my walls blue or put in a waterfall faucet in my bathroom that runs like Niagara Falls. The argument for buying a home for a lifestyle choice may be the only good reason why buying in an expensive place like Toronto or Vancouver is worth it. If your life goal is to paint the walls, put up a backyard deck and have fountains in the foyer then by all means owning the home makes a perfect choice.
Home ownership, if affordable, is mostly about the life goals and lifestyle choices one wants to make. Some people want to make home ownership their life goal. This is something I have nothing against because everyone is different, but that lifestyle choice doesn’t translate to everyone. Some people want to travel the world, some want to play golf everyday, some just want to sit at home and play video games. Some of those goals don’t require the expensive costs of upkeeping a home and certainly does not require a house to be fully paid for at retirement. In fact, I find it hilarious to think that the average Torontonian or Vancouverite will ever pay off their $1M mortgages. Heck… how many of these homebuyers are making over 6 figures to be able to afford expensive city living and hefty mortgage payments? Maybe there’s a lot, and perhaps I’m doing something wrong writing this blog for free.
The Best Investment
“…over the past 10 years, it simply hasn’t been true. Not only has Toronto housing vastly outperformed the stock market—average house prices are up by 130%, versus about 10% for the S&P/TSX Composite… Even if they do sock away the money, most are terrible investors. According to a study by Dalbar, the average annual return in the real world over the past 20 years has been less than 3%”
Wow… if only the world only revolved around Toronto and nothing else. Spoken like someone that thinks that Toronto is the center of the universe and the Canadian TSX represents stocks of the world. These types of statements are truly written by the ignorant who have their heads in a hole. I’ve written before, that the Canadian stock market represents only 2% of the world’s economy. The Canadian stock index is correlated very closely to finance and the resources sector, so it makes a perfect argument that the TSX has lagged in the last ten years with the 2008 financial crash and the 50% drop in oil prices.
One only has to look at a more diversified portfolio to see that over the last ten years there have been significant gains. Sure the TSX index is only up 10%, but the S&P 500 which is much more diversified has returned 71.5% in that span, with two significant crashes. The problem with Canadians and their investment portfolios is that they are home country biased. That’s why returns for most people have been abysmal. These types of numbers thrown at readers are just an attempt to have a more convincing argument for real estate. Granted real estate in Toronto and Vancouver have outstripped any gains on any markets, but historically this hasn’t been the case. This article is focusing on a very slim 10 year window. How many people think they will even pay off their million dollar mansions in the next 10 years?
“Even if they do sock away the money, most are terrible investors. According to a study by Dalbar, the average annual return in the real world over the past 20 years has been less than 3%.”
Adding in a reputable firm like Dalbar only tries to solidify the claim that real estate reigns superior, yet there is no link to this reputable resource. Just a name drop. It’s almost like me saying “Warren Buffet” said that so it must be true. With some further investigation, I was able to uncover this report and it read like what I normally read for investors in Canada. Most are getting scammed by high fee investments offered by financial planners dressed as commissioned salespeople. Canadians have been gobbling up high MER mutual funds that strip away anywhere between 2-2.5% of the annual returns that the stock market would normally make. Thus it comes as no surprise that Canadians are averaging less than 3% in the long run as these expensive mutual funds have been offered by so-called experts in financial planning.
But let’s look at the bright side. You’re reading this blog right now because you want to learn. You want to know about investments and what pitfalls to look out for. That way you don’t have to be the “average” Canadian investor, but become the “average” market return, which in Canada would put you into a class of elite investors.
Even the simplest low-cost, balanced portfolio has provided better returns than the 3% that the Dalbar study has reported. Just take a look at a simple low-cost, balanced fund that is offered by Tangerine. The 5-year trailing return for a Balanced Fund has been 8.68%. Even the 10-year trailing return is 4.29% and that includes a couple of stock market crashes along the way. These returns are still much higher than the 3% that the study claims. That’s because these low cost funds are saving investors almost 2% in fees and they are going back directly into the investor’s pocket. If an investor decides to do-it-yourself with low cost ETFs index funds on a platform like Questrade, then the returns can get even better. Remember that it’s not all about the positive returns, just saving money on fees can make a world of difference between a bad return and good one.
“It bothers me that some pundits still insist that people should rent rather than buy.”
It actually disgusts me that newspapers are still pushing the Realtor agenda and telling me to buy rather than rent. Clearly, the newspaper industry is struggling to meet revenue expectations with the internet and free accessible media across the world. It only makes sense that these old school media companies try to stay relevant with clickbait articles, and one that requires me 1500+ words to debunk. If only this world wasn’t riddled with “Fake News”, but with real journalism then we wouldn’t have to deal with these propaganda articles. It almost makes me feel like Realtors are like President Trump. Wait… wasn’t he a shady real estate magnate that got rich by brainwashing others?
Media should let the general public make their own decisions. Why won’t the Realtors publish real statistics rather than massaged monthly numbers? Why is the public censored from the real facts? Why is there a monopoly on statistics for real estate in the Toronto area? These are all the things that really bother me, but what bothers me the most, is the media trying to throw houses down the throat of everyone and trying to make non-homeowners feel inferior. Home ownership isn’t a status symbol. It doesn’t make you a better person. In fact, renters are citizens too. Let’s treat them that way.