You should have rented.
There’s a book excerpt by Moshe Milevsky over at Globe Investor that makes the argument that many people would be better off renting and not buying their first home until age 50. When housing is a hot investment sector many people overpay and the return to fundamental value hurts many. In the US about 25% of homeowners owe more on their mortgage than their house is worth. This is an obvious reason why renting early in life can be a better long term economic move, but it’s not the crux of the authors argument:
So, where does this leave us in terms of practical housing advice? For one, I think that a large proportion of individuals within the population should not own a house, or they should at least push off the purchase as long as possible, and instead rent. Anyone that followed this advice in the U.S. over the last few years, possibly the last few decades, would be much better off today. This is not just me being preachy or dispensing with advice that–with hindsight–proves correct. If you actually go back to one of the first principles I discuss in this book, namely Long Division and the spreading of resources over time, you can arrive at the same conclusion, but the reason is not as simple as you might think. It isn’t because housing is a “bad investment” or has performed poorly relative to other asset classes. Instead, it relates to the investment characteristics of your human capital when you are young and as you age.
In a number of recent studies, a variety of mathematical economists have developed a control theory model to derive the optimal or rational approach to housing over the life cycle. (I discussed Dynamic Control Theory in the Introduction.) You can think of their research as exploring how Mr. Spock (from Star Trek), who knows all the odds and can act completely logically, would behave. According to these researchers, most “typical” people under the age of 40 shouldn’t own a house but should rent, instead. But again, this isn’t recommended for the reasons you might think. Here’s the Spock argument against home ownership early in life: When you are young the vast majority of your true wealth is locked up in human capital, which is illiquid, nondiversified, and definitely nontradable. It therefore makes little sense to invest yet another substantial amount of total wealth in yet another illiquid and nondiversifiable item like a house.
Sure, if you could buy a house that has a bedroom in New York City, a bathroom in Los Angeles, and a kitchen in Chicago and perhaps a garage in Las Vegas, yes, your home would be diversified. Buying a house as an investment has strong similarities to someone being convinced that stocks are good investment in the “long run,” but they decide to buy only one stock for their portfolio. I don’t care how reliable that one stock is, or how large are the dividends, that stock portfolio is not diversified. The same goes for housing.
Read the full excerpt over at the Globe Investor website.
April 9th, 2010 at 10:00 am
@vibe:
…166.1 wet days = 44% of the year….
So if it rains every other day, then it really 'rains' for 322 days which is 11 months of the year. Well, that's comforting.
April 9th, 2010 at 1:12 am
Tell a babyboomer not to miss their once-in-a-lifetime opportunity, and you'll get the old "deer in headlights" gaze.
April 8th, 2010 at 11:19 pm
OMG!!! Mad rush to the exits! 15,221 listings **11:19pm update
************* 1/1/2010 / 4/8/2010 / % change
Bowen Isld 46 / 101 / 119.57%
_Bby East 68 / 150 / 120.59%
_Bby North 345 / 656 / 90.14%
Bby South 362 / 653 / 80.39%
Coquitlam 531 / 1021 / 92.28%
Van.&Gulf 215 / 252 / 17.21%
___Ladner 65 / 142 / 118.46%
MapleRidge 575 / 919 / 59.83%
_New West 262 / 560 / 113.74%
_North Van. 412 / 835 / 102.67%
OutofTown 105 / 74 / -29.52%
_Pitt Mead 121 / 188 / 55.37%
_Port Coq. 237 / 427 / 80.17%
PortMoody 213 / 391 / 83.57%
_Richmond 893 / 1656 / 85.44%
_Squamish 402 / 483 / 20.15%
Sunshine C. 656 / 1024 / 56.10%
_Tsawssen 98 / 161 / 64.29%
__Van East 767 / 1268 / 65.32%
_Van West 1396 / 2920 / 109.17%
_West Van 386 / 620 / 60.62%
__Whistler 569 / 720 / 26.54%
_____Total 8724 / 15221 / 74.47%
April 8th, 2010 at 10:57 pm
The 'Shitty of Shitcouver' shitty council has decided to spend $40,000 on a party for the 'people who worked on the Olympics'. Thats the 'city staff for those who don't know.
I'll bet the Food Bbank wishes it could fill a warehouse with forty grands worth for the hungry since welfare cases and child poverty rates are going through the roof in Vanshitholio.
Nice move 'shitty hall 'douchebags'… be proud of yourselves. They couldn't use any new dialysis equipment at the childrens hospital could they? Oh yeah, they could.
I'm officially changing "Screw Ball Greggy' the boy mayors name to CALIGULA.
But wait…that may be doing the memory of Caligula a bad name…. at least he brought the cities wretched inside the palace to kill them, this shithead leaves them outside to rot.
"Let the eat cake" say the opulent pricks and government workers.
$40,000 they say, is a 'drop in the bucket'. I guess that depends on who you're talking to.
April 8th, 2010 at 10:55 pm
Bears we are about to see something you will not believe. Once listings reach critical mass an atomic explosion of buying will commence pushing prices to new heights. It's not a nice round number though it's 15321. That's the magic number when buyers decide they must buy now or be priced out forever. You'd be wise to get in before then. Thanks for your time.
VAncouver real estate never go down
April 8th, 2010 at 10:35 pm
Royal LePage warns of real estate ‘irrationality’
————————
Royal LePage "warns"….? Hahahahahahahahahaha… best joke of the year!
April 8th, 2010 at 9:43 pm
@paulb:
So they would be offers signed within for example the last day or two?
April 8th, 2010 at 9:41 pm
@Keeping An Eye on the Pimps:
Lol, and now hes listing homes for $250. Glory days to be a Realtor that's obvious.
Reknab- The sales are firm, as in subjects are removed and deposit in trust, but they complete at some point down the road, could be 5 days could be 6 months.
April 8th, 2010 at 9:37 pm
Hi Paul, question, is the data on sales delayed (ie. occurred days/weeks ago) vs. real time more or less for listings?
April 8th, 2010 at 9:29 pm
"Rob, I say to you, Two straight days of 500+ listings. THAT is a rush to the exits!:
VHB, you be nice to chippy, he's having a fcuk of a time these days defending his benevolent friends from CREA.
He's making some opaque arguments, which most of us can't understand.
April 8th, 2010 at 9:28 pm
Looks like numbers are done for the day, and what a day it was.
520 Listings
116 Price changes
161 Sales
Inventory will hook you up with total inventory when all is tallied.
VHB: Good question regarding the big 600. Yesterday we saw approx. 540 listings and 350 sales so the man power ia available if the sales come in weak like today.
April 8th, 2010 at 9:03 pm
Fun question: Does anyone think we might have a 600 listing day? Or can the board's system actually handle that kind of volume?
April 8th, 2010 at 9:01 pm
Does anyone remember when Chipman used to tease us by asking 'what would a rush to exits look like? How would I recognize it."
Rob, I say to you, Two straight days of 500+ listings. THAT is a rush to the exits! Katie bar the door!
April 8th, 2010 at 8:58 pm
Early review from 15k party
Bears are so scared to celebrate 15k party,there is no one to put wild guess of 60k listings like they did back in 2008.Intial numbers are at 20k those are lower than inventory peak of 22,700 of 2008.Sales number are too strong that put the early intereptions on the 15 k party,Prices appreciation percentage is too high to eliminate gain in two year.Yearly gain comparision include adjustment in prices will take Vancouver real estate to double above 2008 prices in 7 year by 2015 and those numbers of years are almost 13 year early then Satv has orignally recomended.
Three day trend
1428 listings
697 sales in three days
Despite high numbers of inventory the total inventory number is lower than expectations.
Results:
Inventory get it pop it lock it drop it,
That birthday cake,
Got a candle, need to blow that crazy flame away
Now take my red, black card and my jewellery
sales are cool like the fire,
Cool like fire
Somebody call 911
Listings fire burning on the dance floor
Whoa Run Buddy Run
April 8th, 2010 at 8:57 pm
When I was selling homes in early 08 there was every reason why the market was going to drop but it had held up for years longer than many expected. I was watching the numbers closely and very cautiously expecting things to cool in the summer months. Suddenly in May the market just rolled over and died. The cement suddenly hardened and it was done. What was the catalyst I am not sure.
Now we have the same shitty affordability and a tremendous amount of support being withdrawn. Also we can't ignore the HST and being assured of mortgage rate increases. We are also witnessing the highest listing counts ever. I never saw a single day top 450 listings in 08, now we had over 500 listings in the last 3 of 4 days. That is absolutely a rush.
Rates can't bail out the market this time therefore could get really ugly really fast.
April 8th, 2010 at 8:55 pm
@Anonymous: Did I read that right? CIBCs optimistic prediction is that rates will 'only' rise to 2.5% by 2011, a full TEN FOLD INCREASE from their current low of .25%?!?
Gosh I hope no one is buying the max they can afford at today's rock bottom low emergency rates.
April 8th, 2010 at 8:35 pm
Interest rates to remain low through 2011: CIBC
OTTAWA – With the Canadian economy doing surprisingly well over the past six months, many see higher interest rates from the Bank of Canada in the not so distant future, but according to a report released Thursday from CIBC's chief economist Avery Shenfeld, rates are likely to remain at a very low 2.5 per cent through to 2011 – not the seven to eight per cent forecast by some.
n CIBC World Markets' latest Global Positioning Strategy report, Shenfeld lists several reasons for Bank of Canada Governor Mark Carney to keep interest rates subdued after July. He points out that the U.S. will probably have a more gradual approach to raising rates and if Canada gets too far ahead, that could send the Canadian dollar soaring.
"While factories are recovering in Canada alongside a global industrial revival, output remains nearly 20 per cent below the pre-recession peak, and wages are now substantially above those stateside without the productivity gains to match. There's only so much of a competitive challenge that non-resource exporters can take in short order," Shenfeld said.
He also pointed out that inflation is not expected to rise much further and stimulus spending is expected to be reigned in by governments – including Canada's – which will slow growth.
"If the U.S., the U.K., and Japan all move from huge stimulus to even modest restraint, Canada will feel it in our export prospects come 2011," Shenfeld pointed out.
Carney has promised to keep interest rates where they are at 0.25 per cent until the end of June. However, the latest reading of Canada's economic growth showed the core inflation rate at 2.1 per cent in February, far above the Bank of Canada's forecast of 1.6 per cent for the first quarter of the year. Many analysts believe the Bank of Canada will not wait until mid-2010 to raise rates and late last month, Royal Bank, TD Canada Trust and Laurentian Bank raised the rates they charge on certain fixed mortgages.
The C.D. Howe Institute suggests the Bank of Canada should raise its overnight rate by 1.75 per cent in the next year, likely lifting five-year mortgage rates to seven per cent, while other economists envision a five-year rate as high as 8.25 per cent in two years.
http://www.househunting.ca/buying-homes/story.htm…