An open letter to all my renter friends

Dear Friends Who Are Not Homeowners,

I love you. I love your leaky faucets and your wacky room layouts. I love your stark white walls and your durable stain-resistant carpets. I love your visitor parking spaces and your basement window views.

But most of all, I love you.

I love you so much that I’m going to ask – nay, beg – that you think long and hard before you buy a house/condo/duplex/townhouse/acreage/walkout/treefort.

I know, I know – house prices are currently much lower than when idiots (me) bought their homes five years ago. And I know, I know – interest rates have been historically low, and looming threats suggest this could end at any second, and you feel pressure to grab on while you can.

Don’t. Do. It.

Wait, let me rephrase that. Don’t do it unless the number one reason you want to buy a home is that you’ve found a neighbourhood you can see yourself living in as a senior citizen. Because, given how long mortgages are these days, that may well be the case.*

I know people say renting is a waste of money.

Since when is it a waste of money to put a roof over your head?

These same people say you need to build equity.

Let me tell you how much equity I have  – almost none. Due to down payment mortgage rules I was only sort of listening to and, obviously, still don’t understand, I have a few thousand dollars worth of equity – after five long years of paying an astronomical sum each month. There are other things you can rely on instead of equity. Like a silly little thing called savings, for example.

And please, please don’t listen to people who tell you owning a home is a financial investment.

That’s antiquated advice. Maybe it was a guaranteed investment for your parents – who paid for their home then what you pay for an SUV today – but not for you.

Photo: Heather Setka

My dear renting friends, I’m clearly not equipped to give you financial advice.** But I do have a little more life experience (mistakes) and so I can say this with complete sincerity: only buy a home if it’s a lifelong dream. Only buy a house if it’s your number one childhood goal, right up there with playing the bongos in a Reggae band or winning an Olympic gold medal in that weird dancing horse sport called dressage.

Oh wait, there is only one more good reason to buy a house. It’s this: you want to relieve an unwed mother of her burdensome now-35 year mortgage on a condo she purchased during the height of the boom, and will probably never see what she paid for it.

In that case, have I got a deal for you. Call me.

Love,

Heather

~HS

* I have 24 stairs in my condo. The thought of climbing these stairs at 68 years old (when my mortgage amortizes) is really, really, really depressing.

**For great advice from someone who does know something, click here. Rob Carrick’s take on renting and home ownership is a refreshing voice of reason.

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One thought on “An open letter to all my renter friends

  1. Cleatus says:

    Tough to know how to respond to this one gabby! If you had bought in 2002 and were writing this in 2007, the story could have just as easily read “how crazy are people to rent when they could have bought?” That is the trouble with anything tied to money…timing affects the outcome and it is easy to measure two points that show things to be great and to be bleak.

    Here in Toronto, I get a free publication in the mail a couple of times a year and in it they have some local panelists who talk about the real estate market. Everyone from politicians to the lady that runs one of the largest real estate firms in Canada. I have included the links for the last three issues below – it is free online as well – that has the same panel members contributing at regular intervals. You’ll see how back in April of 2011 they thought and how that is different, or the same, to April of 2012. Outspoken doesn’t always mean right and right isn’t always clear.

    Personally, though, I like some of the comments of Dr. Sherry Cooper who when she is not working as EVP and Chief Economist at Bank of Montreal is out speaking and publishing highly sought after advice. A couple of things that she said in the April 2012 issue that made sense to me:

    “Buying a house is not an investment decision, it is a lifestyle decision” and later in the article she says “Real estate’s a good investment from a lifestyle perspective, and what’s more important than where you live to your overall quality of life? So, if you can afford it, then I would certainly recommend to buy. The notion of waiting on the sidelines, I don’t think that really works because your life doesn’t wait on the sidelines.”

    This somewhat connects to her comments a year earlier that read:

    “…I do not recommend speculative home purchases, but given that 68 per cent of households like to own their residence and many more aspire to for lifestyle reasons (family reasons, privacy, pride of ownership, means of self-expression and just plain human nature)” and went on to say, responding in part to another panelist “Garth seems to believe that home ownership is simply a financial issue. It is very much an emotional issue as well, as the behavioural economists are proving. In the history of mankind, people have longed to put down stakes and to create beautiful, personalized homes. Societies with high home ownership levels are stable societies. When the Communist Iron Curtain came down, families worked hard, saved money and bought homes. To be sure, speculative fervour takes over periodically, ending in collapse…but even then, still nothing like the U.S. crash.”

    http://www.postcity.com/Post-City-Magazines/April-2011/Real-Estate-Issue-2011-Roundtable/

    http://www.postcity.com/Post-City-Magazines/September-2011/2011-Real-Estate-Roundtable-update/

    http://www.postcity.com/Post-City-Magazines/April-2012/Real-Estate-Roundtable-2012/

    So here is what I would say about rent versus buy. In the short-term, renting makes the most sense. If you are all about value for money and willing to live like a minimalist, renting makes sense. If your goal, though, is to have a home, make it your own, stay for a while, and you enjoy the peace of mind of living in a great neighbourhood with access to parks, schools, and whatever else is important to your life or lifestyle, then I would buy. Plus while Rob Carrick does make a great point in his article, like all things held in isolation – the comparison of price volatility against interest rates – it is an isolated point that can be solved with other data points contradicting the outcome he presented. For example he did not go far enough to show how home prices are affected by interest rates (even though they are imbedded in his assumptions), did not use current market rates that were available in March when the article was published (which were as low as 2.99%) and did not bother to explain why someone would be exposed to higher interest rates next year (or how this problem can be avoided just by talking to your banker regardless of your mortgage maturity date). In-fact, if that was explained…and how to avoid prepayment penalties to lock in when rates are low to push out interest rate increases as long as possible…that would have been of more value. That is part of the trouble with this stuff, most of it is just positioning and getting advice that is only half the story is sure to result in some unwanted exposure, or how to take the 35-year mortgage we might have needed on day 1 and cut it to 25-years when rates are as low as they are today without much effort. 10 years is huge!

    Heather…if you want some help with this, just email me. I’m happy to get you set up with something to get out of hock faster than you might have thought possible. And if it works, you’ll have something to add to the blog. 🙂

    Anyway, I just realized my comment is longer than the blog on this topic, so time to stop gabbing. Thanks for continuing to publish these articles CashGab (a.k.a. Heather)! They are great to read and I check every night looking for the next story. Happy Easter Weekend!

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