By: Private Pension Partners Investment Group
Given the dollar scale, purchasing a home generally causes a fair amount of stress to individuals recognizing the size of the financial commitment that is being made – the debt assumed, the equity put down, and the costs to close (legal, land transfer tax, real estate commissions). With “rent” versus “own” advocates more than willing to offer up plenty of news releases, advertisements, analysis, blog posts, and LinkedIn commentary supporting their own perspective hoping to influence one’s decision, we wanted to dive deeper into the behavioural side of this very important decision. The reality is that many steps are involved in making any major decision in life. New relationships, new cars, new jobs and certainly new homes, however defined, take time and should be thoroughly considered choices. We often also challenge the notion that the deciding factor in purchasing versus renting a home should be purely a financial or investment one. Our experience has taught us that location and affordability carries more weight when the consumer is younger and early on in their career recognizing their savings are not as robust; however, as people age and start to de-cumulate, financial issues tend to moderate with a shift to focus on the quality and simplicity of living. For all of us, there is likely the right time to own, and the right time to rent, so let’s explore those drivers behind making your next housing decision:
CONSIDERATION #1 – Real Ability to Save: the data is everywhere and it’s no secret that many demographic cohorts are living more expensive lifestyles than previous generations which is both consumption and inflation driven. Increased societal importance on experiences such as travel, entertainment, socializing, and relaxing comes at a meaningful cost and affect one’s ability to save. With the average savings rate for Canadians near historic lows, it’s no surprise that the process of saving for a sizable down payment is becoming increasingly difficult.
CONSIDERATION #2: – Affordability: nearly a decade of stimulus justified, rock bottom interest rates has meant record high private real estate prices and hard asset inflation creating significant barriers to entry to home ownership. The average Winnipeg single-family house was priced at $321,945 as at December 2018 per the Canadian Real Estate Association having increased 2.0 per cent over the previous year. A buyer would need to have a 20 per cent down payment of $64,389 to purchase this house and avoid an additional CMHC insurance premiums on top of their new mortgage. For many early entrants to the housing market, this amount is simply unattainable. While CMHC insurance can reduce the required down payment, the associated fees are material with the recent 2019 federal budget also including an announcement that would see the Canadian government pick up part of the costs of an eligible buyer’s mortgage to lower their monthly payments with the amount of help determined by their incomes and whether they’re buying an existing or newly built home. While clearly a politically motivated plan, our view is that this plan isn’t likely to have much of an impact on first time home buyers given their general aversion to debt and a life-long home ownership “partner” in the form of government.
CONSIDERATION #3 – Access to Simplicity and Lifestyle: from empty nesters, to students, to seniors, to families, the absolute costs of owning a home or condominium has led to a downsizing movement among all demographic cohorts in Canada. A quick look at the hard costs of each confirms what many already know – renting is a better economic choice for most: (See tables 1, 2 and 3)
Developers of rental properties are responding mightily to the new leasing lifestyle movement by focusing not only on a high-quality, in-suite experience with exciting building amenities such as parcel drop-off and storage areas, dog runs, concierge services, added security, and car washes, but also, by making meaningful investments in engaging community experiences for residents that includes tenant lounges and social areas, internal courtyards, art installations, community events such as holiday parties, public gardens, and spacious patios and deck arears. Rental developers appreciate and aim to create a tight knit community experience with safety, comradery, and neighborhood respect at the forefront of such focus. While we will never argue that apartment living is the correct choice for everyone, we encourage all to consider the benefits of leasing your next home as it is noticeably cheaper, likely safer, certainly hassle-free, and truly a more flexible way to live. Today’s new apartments are no longer the default, first time housing option. They can, and for many are, a new way of enhanced savings, living easy, and spending your time your way!