The stakes get higher as prices continue to soar
Province
Renting can free funds for other investments
TORONTO — Staking a claim in the Canadian housing market has never been this expensive, and it’s enough to make some prospective buyers consider renting a long-term home — but is renting going to save money or is buying still worth the investment?
Financial planners say both are viable options, depending on your lifestyle choice and personal discipline.
Today’s hot housing market has challenges that, while always present, are especially prominent, says Adrian Mastracci, investment counsel at KCM Wealth Management in Vancouver.
He said common struggles include finding an appealing home and then getting it at an affordable price.
“Today there’s more pressure to make your best offer first, and you don’t get the chance to come back with a counteroffer, usually,” Mastracci said.
“The danger is always that the market gets away on you. If it gets away and prices rise dramatically, as they have in certain locales across Canada, it really hurts when you go and plunk your money down on the table for your first purchase.”
According to a recent housing-affordability report by RBC Economics, home prices continued rising faster than incomes during the second quarter.
B.C. remained the least affordable province, but Alberta’s energy boom sent its prices up about 25 per cent, with the cost of a two-storey home jumping $28,000 in just three months.
However, even in a torrid market “you shouldn’t think this is really going to be the end-all and be-all, your best investment,” Mastracci cautions.
“It may not be — especially if you buy at a high time.”
Over 20 to 30 years, most homeowners might get an annualized return of four to six per cent, he estimates.
“If you buy today and, lo and behold, real-estate values roll back, you’re not going to look like such a great investment manager for a while.”
But with the right approach, renting can benefit Canadians working on a strict budget.
Typically these are younger professionals establishing their lives, says Joel Natareno, a regional sales manager for the Bank of Montreal.
Without home ownership tying them down, they’re free to travel wherever jobs are, don’t have to worry about maintaining a house and can concentrate on financial investments such as stocks and bonds.
“From a renter’s point of view, you’ll be able to sock away a little more if you’re looking at putting away a down payment on a house — or just enjoy living a little better as well.”
But Natareno adds: “We’re finding people aren’t saving that much more; they’re probably just spending more.”
That can put renters under financial stress, especially as they age toward retirement.
A poor investment could put a tenant’s future at risk, even with a substantial savings rate.
Natareno warns that most retirement-age Canadians couldn’t live comfortably while paying rent if they were simply depending on their pensions.
It would be hard to pay the rent and maintain the “heightened lifestyle” that many are accustomed to, he says.
Natareno doubts that the rate of home price increases in recent years can be sustained, but suggests now would be “a good time to buy if you were thinking of holding on to your home for a longer period of time.”
He advises sitting down to examine your finances and set out a plan. That means looking at your budget and cash flow, assessing the direction of your career and considering your family, travel and other aspirations.
“The best thing you could do is go and see a financial planner to talk a little bit about how you can budget to save for a house, if that’s what you’re going to do in the next five to 10 years.”
© The Vancouver Province 2006
