Those heretics over at Canadian Business magazine have a cover article this month called Why Buying a House is a Bad Investment.
The euphoria around home ownership crowds out some of the unpleasant truths about real estate: mainly, that long-term returns are often modest at best. Some studies have found that stock indexes actually outperform housing. More worrying is that real estate prices can and do fall — and they can take a long time to recover. Canada has not been immune to severe price corrections in the past, and we could be on the verge of another one now. With interest rates set to rise and curb affordability, and with economists speculating about a bubble, staking one’s entire financial future on a home is not necessarily a wise bet. In fact, a house just might be one of the most overrated investments around.
..and it goes on and on.
“There’s a unique confluence of factors that has driven house valuations up this sharply,” says Derek Holt, vice-president of economics at Scotia Capital. “They’re all temporary, and that’s a house price bubble that could be pricked as we go off into the next year.” The rate of growth in home prices for the past 10 years has in fact been out of line with prior decades, pointing to lofty valuations today, according to Holt. Prominent Canadians such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge have also sounded the alarm recently on today’s unusually rich home prices.
You can read the full article at the Canadian Business website, but these people clearly don’t know what they’re talking about. After all, real estate prices never go down, everybody knows that.
