Too often home ownership is pushed without thinking holistically about our money
Hey everyone, I’m back (IYKYK). I missed you all.
I’ve also been thinking about housing affordability. I’ve also been thinking about long Covid as a single person but that’s a different newsletter.
Why have I been thinking about housing? Because when I was away from this newsletter, I was writing stories including one on the new Tax-Free First Home Savings Account (FHSA) that was recently announced by the Canadian Federal Government in their 2022 budget.
The FHSA, which will launch in 2023, will allow Canadians 18 years and older who currently don’t own a home or haven’t owned one in the last four years to save a total of $40,000 towards a down payment.
That’s all well and good because you can claim the contributions on your taxes and withdraw the amount without tax penalties. That should give people more money towards buying a house but it’s really not going to help people who can’t afford to buy a home to, well, buy a home. That’s because $40,000 is a nice chunk of change but when a crappy house sells for over a million, that’s a drop in the bucket.
Prices are dropping a bit this spring according to BNN Bloomberg but the cost of homes is still up year-over-year. No one really knows if the housing market will actually collapse.
All of this is interesting because traditionally, it has been believed that owning a home has been a way to create wealth.
Who hasn’t heard the cliché of ‘rent is just throwing your money away?” Maybe that was true 20 years ago when you could afford to buy a home with less than half your salary.
Now obviously there are a lot of factors here: the current state of the housing marketing now that interest rates are on the rise, the cost of homes still being high, the lack of enough rental protection for people who rent newer properties, who actually owns rental properties and that owning a house doesn’t guarantee a massive return on investment.
Which got me thinking, how should we be thinking about homeownership these days? I asked Elke Rubach, president of Rubach Wealth in Toronto and the short answer is, it depends.
Ms. Rubach points out that the idea of homeownership is something we’re told. “The interest is in homeownership is because that's the dream that everybody has taught them,” she explains. “Nobody talks about financial literacy in school, but everybody is told that you have to buy a house.”
She says that people need to figure out what’s important to them and whether it makes more sense to invest in real estate or in the market.
“Sit down and figure out what's important to you,” she explains. That includes figuring out how much you’re making, where is the money coming from and how much you’re spending. “If you’re making $10, it might make more sense to spend three dollars in rent, save three and spend three. That might be better than spending six dollars on homeownership and having two dollars in reserve if something breaks down. Then you can’t do anything because you’re beholden to your house.”
Ms. Rubach says that if your rent is close to a mortgage, you should run the numbers, including the cost of repairs, property taxes, parking, insurance, etc. and see if it makes sense actually to get a mortgage. If the rent is lower than a mortgage, you’re in a good place and have a good relationship with your landlord, then it may make more sense to keep renting and invest the rest of the money.
Too often, she says, people tend to look at homeownership in isolation instead of holistically as part of their overall financial position and cash flow.
Obviously, the ‘right’ answer is different for all of us but there’s nothing wrong with renting or buying. Neither is more right than the other.
Things I like:
Provenance’s trip to Iceland. You do not have to lift a finger (ok, you do have to lift your suitcase.)
I love showcasing my friends’ businesses and projects. One friend, Maryam Siddiqi, has a travel business, Provenance, and I’m loving it. The first trip is heading to Iceland this fall. I’m not going but I’m definitely eyeing the Morocco trip next year.
Adventure meets wellness in this itinerary designed by an expert travel
journalist. During one week in November this small group, guided by locals, will explore Iceland through its wellness traditions. It’s an itinerary designed to help you relax and recharge.
For more information, including the itinerary and how to book, click here. (Maryam picks the best hotels.)
This week’s readings:
I like this article overall but especially for the financial reasons. Who wants to share CPP? Our Platonic Marriage Is No Less Legitimate Than Romantic Marriage (Refinery29)
I feel this. The World's a Mess. So They've Stopped Saving for Tomorrow. (The New York Times via Yahoo Canada)
It meeee forever. This one is for my American readers but I might do a version for Canadians. Let me know. Saving for Your Future Self While Freelancing (The New York Times)