Buy or Rent?

Are you paying someone elses mortgage? Probably not if you’re renting in a building thats just a few years old. The gap between rental costs and owning cost have grown rather severely over the last few years, a fact that makes some people wonder whether buying makes financial sense. This point is debated in an article in todays business edge.

“Today there’s more pressure to make your best offer first, and you don’t get the chance to come back with a counter-offer, usually,” Mastracci says.

“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 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.

So if you buy now and hold for 20 or 30 years you might make six percent per year. What if you had bought in 1980 or 1991? What if you buy in 2011?

What if a condo rents for $1500 per month vs. a monthly mortgage payment of $3000. What if you were incredibly disciplined and you put the $1500 monthly difference into a savings account or GICs?

What if the housing fairy came to vancouver and magically turned all homes here into wonderful, solid, trouble-free buildings?

That would be awesome.

25 Responses to “Buy or Rent?”

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    Anonymous Says:
    1

    I wish vancouver had a magical housing fairy. I live downtown in a leaky condo and all I've seen is normal fairies.

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    tinybubbles Says:
    2

    Vancouver has always been an expensive city but now it's just ridiculous. I'm looking at the cost of living in other cities around canada and I'm finding it harder and harder to justify living here.When I was younger I never thought I'd want to live in a small town, but now I'm looking at the fact that I could buy a nice house on land with a tiny monthly mortgage payment and thinking that makes a lot more sense than staying in a city that is becoming more expensive and less attractive.

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    Vancouver is cheaper and prettier than New York or Tokyo, but its getting more expensive. If you wait to buy you might find that it has gotten too expensive to buy in.It's never going to cost the same to live here as it costs to live in a small town.

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    I just moved from one rental to another. I saw a newspaper article recently about how hard it is to find a rental in vancouver, but I found a good one in Kits within two weeks and there were lots out there. It's true that a lot of them were crappy places, but I found the same thing looking at condo's to buy.The difference is that I would be responsible for all the upkeep, maintenance, etc if I purchased a condo and I'd be paying more than twice as much per month.Finding a rental is not hard here unless you're trying to find a 3 bedroom house in central vancouver for under $500 per month. Right now I figure there's a big chance the market is going to correct, and that doesn't make the gamble of buying an overpriced crap condo worth it.

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    WoodenHorse Says:
    5

    If you wait to buy you might find that it has gotten too expensive to buy in.Run Children! RUN! You'll be priced out forever…wooooo!Also: Vancouver is cheaper and prettier than New York or Tokyo,Furthermore, Vancouver presents a small fraction of the economic activity, and due to the lack of international corporate HQ's is not clutered with all those high paying jobs.Richard: you're not alone in that. I think Vancouver stats are way off the mark with regard to rentals. It is stupid easy to find a place to rent for a pretty reasonable rate.D_oush: are you serious in all that you've said? (really…I am truly starting to think you're pulling my leg)

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    woodenhorse:with all due respect I'm not the only one in vancouver that disagrees with your views on the housing market here.I think the demand that we've seen in vancouver will mean higher paying jobs and more economic activity in the future. Is that really so hard to believe?

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    D_oushI think the point is that if you buy now thinking that prices will increase like they have you are making a big gamble and one that isn't well backed up by research or evidence.I don't think anyone thinks that Vancouver is going to become a ghost town, but it might take a very long time for the economy to catch up with house prices and until it does prices are highly likely to stall or drop.

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    the pope Says:
    8

    If you wait to buy you might find that it has gotten too expensive to buy in.Run Children! RUN! You'll be priced out forever…wooooo!I think the whole point is that for a lot of people this market already HAS gotten too expensive to buy in. Not necessarily that they can't afford it, but that its not currently worth the price premium against the option of renting.

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    WoodenHorse Says:
    9

    Sorry for hounding you d_oush.d_oush said…I'm not the only one in vancouver that disagrees with your views on the housing market hereAnd I recognize that. However I'm looking to understand why they think that.Furthermore, it is a tad frustrating to have you show up here, say the following: All you grumpy bears are fooling yourselves. The fact is that things are different.but IMHO have nothing to back this up.Anyhow, we'll all see what unfolds, so I won't bother you further. Cheers

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    WoodenHorse Says:
    10

    the pope said…Not necessarily that they can't afford it, but that its not currently worth the price premium against the option of renting. Yes, but if d_oush believes that prices are going to climb indefinitly, than those people are bigger fools than those that truly are priced out at the moment.

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    solipsist Says:
    11

    I have a feeling that d_oush is under 30 – likely 23-26. Likely never seen a recession, likely his/her Grandparents never suffered through the Great Depression (and never talked to him/her about it), and likely has only "seen" this current RE market. Also, likely bought into the hype of this boom, and bought a condo at W.Of course he/she will be in denial. Hubris is especially prevalent in the young.If I am wrong d-oush, please pardon the hubris of the middle-aged.

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    WoodenHorse Says:
    12

    solipsist:I wouldn't be so quick to say that.I was interviewed for a position with a large blue chip industrial in late 1999. At the time that multi-billion dollar corp was a buzz because…Yahoo! I think it was…had a bigger market cap.Then, like now, I was baffled by the market activity…but (shrug) maybe it's something that I'm missing. However I was beening interviewed by a man in his mid 60's, a year from retirement. During the interview the guy says to me "well now that the business cycle is broken and we'll never have a recession…" Even then I was shocked. Here's a man who must have seen ups and downs and this time, right here….unlike any point in human history, is different. oh well….I think that we'll all see sooner than we think.

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    bc_cele Says:
    13

    d_oush, as I said in my last post Vancouver is not in the same catagory as New York or Tokyo. Moreover, Vancouver doesn't have near the medain income that these cities do. Wage earners don't even come close to making as much in Vancouver as they do in such places as London, Windsor, or Sudbury – and these cities have much much lower housing costs.As for your argument of size – on the scale of things Vancouver isn't even that large. The city of Vancouver is only about 600K and the GVA is about 2.5mil. Compare that to Toronto's population of 2.5, and GTA's 5 mil. So why are housing prices here more expensive? Oh wait, mountains, right?

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    bc_cele Says:
    14

    solipsist said… I have a feeling that d_oush is under 30 – likely 23-26. Likely never seen a recession, likely his/her Grandparents never suffered through the Great Depression (and never talked to him/her about it), and likely has only "seen" this current RE market. Also, likely bought into the hype of this boom, and bought a condo at W.I actually had the same impression of his age. Where I work there are a lot of young men around 20-25 that find themselves with a well paying job (starting at 36-45K) for the first time in their lives. Whereas, I'm close to 40 and drive a 7 year old Grand Am that is completely paid for, most of these guys have purchased cars in the 30-40K range!! They do it because they buy on emotion, which is all that d_oush has to back up his argument. Unfortunately, buying on emotion is a fools game and in the case of a really overpiced house, it can end up in financial ruin.

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    solipsist Says:
    15

    @woodenhorse (I like how el vince does that)I wouldn't be so quick to say that.I really wasn't quick to say that. I have been reading his posts for a few days, and thinking "WTF?".Then, I "held my tongue" to see if he was just friggin' with the readership. Then, I started thinking "this guy/girl is in a lather". Fear? Hubris? Ignorance? I don't know, but his/her surety is mind-boggling to me.I surely do not want to knock anyone, and I am generally careful not to be condescending, but I am blown away sometimes.

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    WoodenHorse Says:
    16

    Hi Solipsist:I like how el vince does that to….except for it literally reads "at such-and-such".I would hope that d_oush sticks around. At least he had the decency to not be anonymous (btw: I only hate that when anonymous stirs the pot). And I hope he can find the time to read some more about the market.Although I shouldn't have said that you were quick to say that, what I should have said is I don't have a lot of confidence we could predict his age based on our current knowledge.For every young person that has never experienced hardship, there's an older guy that thinks the hard times are all in the past.I try not to be condescending either, but I seem fail at that effort more frequently than yourself. Also, in text I come across as a hard ass when I'm really soft like cookie dough.

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    I'm still here. I've got a thick enough skin to take a bit of debate without taking it personally.The city of Vancouver is only about 600K and the GVA is about 2.5mil. Compare that to Toronto's population of 2.5, and GTA's 5 mil. So why are housing prices here more expensive? Oh wait, mountains, right?Its not just mountains – we have a better climate and cleaner air. If anything the fact that we are a smaller city is a plus not a negative. It means we have more to grow and more growth means higher prices right?

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    Oh, and as far as the age thing goes, I'm not a kid, I'm at the top of bc_celes estimate.I don't know much about the depression, but I do know that a lot has changed since then. I would think that just the fact that communication is so fast now compared to then would make a difference in keeping anything like that happening again.

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    solipsist Says:
    19

    Glad that you are still here d-oush, and that you are not too sensitive.I did not mean to imply that you are a "kid" – just young. Pith and vinegar is a good thing to have at any age. It's better when young though, because the young have lots of time to recover (and learn) from mistakes.The Depression was nasty, and few saw it coming. It happened pretty much over-night. The world has definitely changed since then – now we have nukes, internet, plasma tv's, and yes, communication is much better. Communication is not really the lynch-pin though. Communication didn't help much in the Stock Market crash of 2000 – when a lot of people took a bath (including me – full of pith and vinegar, I was). It really hasn't helped in any of the melt-downs of the last century. Communication is a double-edged sword though – it depends on what one reads, and how one interprets that.The psychology of marketing has become a lot more sophisticated, and the marketers can make people dance to just about any tune. As well, not nearly so many people (average people) were invested in the markets in those times, and credit cards, lines of credit, home equity loans, etc. were nonexistent. The biggest debts that consumers had were a tab at the dry goods store, or a farmer's seed stock on credit. People were also a lot less reliant on energy. Few people had cars, electricity, telephones, etc. There were no daycare fees because mothers stayed at home, made the kids' clothes, had a vegetable garden, made their own bread, jams, pies, etc. Food was much more locally produced, and so on. There was a decade or so of exuberance after WW1 that ended in a right mess that lasted for ten years before WW11 kicked in. Then, there was another decade of hurt around that. The pain in Europe lasted right into the early 1960's.I think that because things were so much simpler then, it was easier to recover.But I may be wrong. We'll see.

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    d_oush said: Its not just mountains – we have a better climate and cleaner air. If anything the fact that we are a smaller city is a plus not a negative. It means we have more to grow and more growth means higher prices right? No offence, but I'm always rather bemused when people mention the climate for two reasons. One, it really isn't a major concern for most people, if it was then why is the population of Toronto larger than that of BC by about 1 million people. Second, it isn't like BC has the climate of Florida. It's more of a trade off between snow and rain. I spent five solid days in a fog last winter that just didn't lift. And how many days in a row did it rain? A few days of -20 that a cold and clear isn't a big deal for the most part. It's still 20C inside.As for size, larger cities tend attract more people, even if the rate of growth is the same. My home town is now about 350K people, but the population growth is smaller than that of Toronto, both in absolute terms, and rate of growth. Large cities also attract a large number of weathy individuals who can also prop up the market. It's no secret that large cities like NYC, London, Paris, and LA, are much more expensive to live in, and housing is a big part of it.

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    WoodenHorse Says:
    21

    D_Oush said… I don't know much about the depressionYou should read about that. Current credit markets and asset inflation are mirroring the last 20's like you would not believe.Furthermore, back then, the US Dollar was tied to the Gold Standard, which it isn't now thus allowing for things to get even further out of whack before correcting.But I agree that information tech/communications will have an effect….it'll likely cause a correction to occur with greater speed and intensity when it does come.I do have a question for you d_oush:Have you spent any time (i.e. 6 months or more) in an area other than BC? Not being from here it often amazes me what ppl who are from here think of Vancouver's relative position in the world and the benefits of it's climate, surroundings and what not.Make no mistake, this is a small city on the edge of a small country with little more than 100 years of history. While is does have a lot of things going for it…it's not even close to NYC or Montreal even.A nice environment and mild weather doesn't put food on the table, money in the bank or hummers in the driveway. However people here seem to think we can run the city with RE and tourism alone. This may work for a while…but not that long.

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    I think Vancouver stats are way off the mark with regard to rentals. It is stupid easy to find a place to rent for a pretty reasonable rate.Yeah, I found the same thing- there are many many places on craigslist as well as in the papers and just signs on the street. Are the stats skewed because of all the illegal suites that aren't counted?

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    bc_cele:Large cities also attract a large number of weathy individuals who can also prop up the market.Isn't that the whole point about vancouver's market? That we do attract wealthy individuals who buy here and drive demand and prices up?

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    bc_cele Says:
    24

    Isn't that the whole point about vancouver's market? That we do attract wealthy individuals who buy here and drive demand and prices up? So are you saying that Vancouver is a small city, or a large one?

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    I'm saying that vancouver is a *growing* city.

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