Rent vs Buy
In preparing for my recent BNN Interview (July 9th) the producers sent some queries in advance of the spot; one was "Is it time to rent or buy?". We never covered it on air but my response would have been:
It’s always a time to rent or buy unless you're Hikikomori.
One should look at the fundamentals of one’s present balance sheet and not rely on past performance or future speculation. If you are risk averse then buy or rent what you can pay for if the scenario of your household income were to suddenly drop. Contingencies are for the unexpected. Two income households may have a cushion, one income households have a greater risk.
I mashed up the chart above from Mercer via ZeroHedge which shows the high rent cities (petro-finance-centric) and I included Manhattan averages with or without doormen as well as the 3 hot Canadian markets of Vancouver, Calgary and Toronto.
The fundamentals don't support buying in Vancouver, Calgary and Toronto especially since interest rates are at a low (will they drop?) and rents and resale prices are at the highs (will they rise?).
There is little room for improvement on cash flow unless buying hot market real estate to rent out has some potential for improving the ability to increase the revenue. As I demonstrated in my case study last year of buying a Vancouver condo for investment, the risk of a negative return is only going to be alleviated by a 25% reduction in purchase price if comparison to a 10 year bond is rational. Also last year at the time of the study, inflation (CPI) was running at half of what it is today; a rising CPI erodes the bottom line.
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'