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Don’t fall for your bank’s ‘sucker rate’

Posted by GuruDan on December 7, 2012

Mortgage negotiation: Why every basis point counts

This article originally ran in Yahoo Canada! Finance

By Dale Jackson | InsightThu, 6 Dec, 2012 10:37 AM EST

 

When your mortgage comes up for renewal, you’ve got to go into negotiations armed with all possible info. » Basis points matter

I just renewed our mortgage for the last time – ever.

We locked into a five year term and the house will be paid off well before it ends. Any move from here would be a downsize so it’s pretty safe to say the mortgage renewal ritual is over for me.

After 25 years of home ownership, there’s a lesson for younger homeowners that can get their homes paid off quicker and save tens of thousands of dollars: basis points really matter.

For those who don’t know, one hundred basis points equals 1 per cent. Banks talk to us about the cost of debt in percentages, but banks talks to other banks about debt in basis points.

That’s because our mortgages transcend our neighbourhood banks and enter the multi-trillion dollar global debt market where they are morphed with other mortgages and debt instruments. A difference of a few measly basis points between what lenders charge and what it costs them to borrow can translate into billions of dollars in profit.

That’s what the banker across the desk is thinking at mortgage renewal time, and that’s what you – the consumer — should be thinking too.

Negotiation basics

The ritual often begins weeks ahead of the renewal date with a phone call from the bank offering a mortgage rate below the sucker rate – more commonly known as the posted rate on the bank’s website. It sometimes comes with a threat that the offer could expire if you don’t act now. After some haggling the offer to me was 3.99 per cent, or 399 basis points for a five-year closed mortgage. The sucker rate was 5.24 per cent, or 524 basis points.

I took a pass and was contacted by another representative two weeks before the renewal date who, after I threatened to take my business to a mortgage broker, offered 3.09 per cent.

At the time, the best rate for a five-year closed mortgage on broker websites was 2.84 per cent. Mortgage brokers are great. Posting the best rates on their websites gives the borrower leverage. If you choose to go with them, most are compensated by the lender — not you. Brokers like RateHub.ca also provide calculators to let you do your own number crunching and see the cost in dollars.

After mentioning mortgage brokers I usually get a slight whiff of condescension at the pettiness of bickering over a few basis points, and ungratefulness at not appreciating a rate so far below the sucker rate.

In this case, I was also informed that the penalty to be imposed by the bank for taking my mortgage elsewhere would outweigh any gains from a few basis points — not true, but a good point. Touché.

In the end I went to a broker at Mortgage Intelligence who came up with the bright idea of negotiating my mortgage with his contact at the same institution. I signed off at 2.85 per cent.

I saved a few hundred dollars this time around but for an illustration of how a few basis points have, and can, make a big difference over several years let’s plug in the same rates for a mortgage of $300,000 and biweekly payments of $1,000.

  • Total interest on the "sucker" rate of 5.24 per cent would be $156,366.
  • Interest on the "special" rate of 3.99 per cent is $100,383.
  • The "final" offer of 3.09 per cent generates $70,203 in interest.
  • And the 2.85 per cent settlement rate would generate total interest of $63,152.

In the end, the homeowner with a 2.85 per cent mortgage saves over $90,000 from the sucker rate and pays the house off nearly three years early.

Petty? I don’t think so. No wonder the banks fight so hard for a few basis points.

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Posted in Insurance related, Mortgages, Real Estate | Tagged: , , , , | 3 Comments »

Vancouver home sales drop sharply in June, hit 10-year low, local board says

Posted by GuruDan on July 6, 2012

By The Canadian Press | The Canadian Press – Wed, 4 Jul, 2012 5:40 PM EDT

 

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Canada’s hottest real estate market takes nosedive

Sales in one of the most popular cities to purchase plummet to a 10-year low, ahead of mortgage rule changes.

 

 

 

 

VANCOUVER – Vancouver home sales hit their lowest level in more than a decade in June, falling 17.2 per cent from May, and tilting the market in favour of buyers, the city’s real estate board said Wednesday.

However, despite a drop in the number of sales, prices in what was once the country’s hottest real estate market have remained firm, the board said.

The Real Estate Board of Greater Vancouver reported 2,362 sales in June, which is a decline from 2,853 in May and also off 27.6 per cent from a year earlier when there were 3,262 sales.

However, despite the lower sales numbers, the housing price index for residential properties in Vancouver was still up 1.7 per cent from a year ago.

"Overall conditions have trended in favour of buyers in our marketplace in recent months," board president Eugen Klein said.

"This means buyers are facing less competition and have more selection to choose from compared to earlier in the year."

The board said June sales were the lowest total for the month in the region since 2000.

June sales of detached properties in Vancouver totalled 921, down from 1,471 in June 2011, while the price for detached properties increased 3.3 per cent from a year ago to $961,600.

Sales of apartments slipped 19 per cent to 1,026 in June from 1,266 a year ago. The benchmark price of an apartment increased 0.3 per cent from June 2011 to $376,200.

Meanwhile, there were 415 attached property sales in June, down from 525 a year ago, while the benchmark price decreased 0.1 per cent from a year ago to $468,400.

Vancouver has been one of the country’s hottest housing markets, but has shown signs of cooling in recent months.

New listings for detached, attached and apartment properties in the Greater Vancouver region totalled 5,617 in June, down from 6,927 new listings in May and from 5,793 new properties a year ago.

The total number of residential property listings on the board’s MLS service was 18,493, up 3.27 per cent from May and up 22 per cent from this time last year.

The slow down in sales in Vancouver comes ahead of changes by Ottawa to tighten mortgage lending in Canada.

Finance Minister Jim Flaherty moved last month to cool the red hot condo markets in Toronto and Vancouver by tightening the rules for borrowers including cutting the maximum amortization period for government insured mortgages cut to 25 years from 30.

As well, the federal regulator of financial institutions has told lenders they can only issue home equity loans up to a maximum of 65 per cent of the property’s value, down from the previous 80 per cent.

Posted in Insurance related, Real Estate | Tagged: , , , , | Leave a Comment »

DIY home selling: Wise or a fools’ folly?

Posted by GuruDan on June 18, 2012

By Liam Lahey | InsightTue, 12 Jun, 2012 2:11 PM EDT

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When selling one’s home, the desire to hire a real estate agent is waning in Canada, according to a new survey commissioned by PropertyGuys.com.

Canadians say real estate commissions are too high, agents don’t have their best interests in mind and bidding wars are engineered by the industry, say respondents in the survey conducted on the Angus Reid Forum.

The survey found:

  • 82 per cent of homeowners agree that the average five per cent commission real estate agents charge is too much.
  • Fifty per cent say that agents don’t have their best interests in mind when selling their home.
  • Another 60 per cent believe that property bidding wars are engineered by real estate agents.

"There’s an overwhelming sentiment that the status quo, and the commission rate that seems to sustain in Canada at around five per cent; folks don’t like that and they find it too much," says Walter Melanson, director of partnerships at PropertyGuys.com in Moncton, N.B.

"We know there’s a sentiment among Canadians to try something new and different … so many are disgruntled towards the amounts they paid in the past (to real estate agents) and they’re likely to consider alternatives."

Melanson says there’s a genuine consumer desire for change in the Canadian real estate industry.

"If we look at the traditional real estate industry, there hasn’t been any great deal of reform and the little box they built about 100 years ago operates quite the same as it did then.

"You’ve got an industry today that doesn’t want change and … those that suffer the most are the folks that choose traditional agents and are waiting for something big to happen within that space that helps them start to save money."

Want to go it alone? Here’s what you need to know

While it’s true you could sell your own home without a real estate agent, there are a number of factors to consider before doing so.

For starters, understand that real estate agents generally charge a five per cent fee for their services that include having forms and contracts approved by lawyers to execute a sale contract.

Real estate agents also advertise that your property is up for grabs beyond sticking a sign on your front lawn and they’re front and centre whenever a potential buyer shows up to take a tour of your house or property to highlight the unique features and/or renovations you’ve done to the building. And agents also handle the negotiations with a potential buyer.

"Buying or selling a home is the single largest investment a purchaser or seller will make in his or her lifetime. As such, the services of a full-time real estate professional are required to ensure the best possible outcome," says Christine Matysiewicz, director, RE/MAX Ontario-Atlantic Canada Inc. "Surprises can arise at any given time during the home buying/selling process. From legal issues such as easements, encroachments and grandfather clauses to the negotiation table, the process is not without pitfalls."

If you’re selling, your realtor will set a price based on comparable sales in the area. He or she will likely get a higher price for your property than if you tried to sell it yourself.

"Your home will also sell faster because of the exposure it will receive. Your realtor is also connected to your neighbourhood — he or she will continually assess market conditions and how they impact your property," she continues. "Your realtor is also a skilled negotiator and has been educated on the complex laws and regulations in real estate and is trained to put together a legally binding contract … and if you’re buying, your realtor can open doors to thousands of properties through the MLS system."

If considering alternatives, one should weigh their own needs and goals, as well as their own abilities, Matysiewicz advises. "They should know what level of personal involvement they are interested and available in having in the transaction process. Most of us have very busy lives," she points out.

Some questions consumers might want to ask themselves may include:

  • Do you have the time, energy, know-how and motivation to sell/buy on your own?
  • Will you be able to effectively market your home?
  • Do you feel comfortable showing you home to strangers and can you make your home available to potential purchasers when needed, given your hours of work and other commitments?
  • Will you be able to deal with a parade of potential bargain hunters and tire kickers?
  • Can you overcome the emotional attachment you have to the property? Would you be able to negotiate effectively and accept criticism of your home?

Are you able to manage technical issues related to contracts and negotiations?

If you’re selling and mulling over which realtor to turn to, Matysiewicz recommends touring your own neighbourhood to see who has a strong presence. It’s ideal to engage someone who is very active in the local marketplace.

"Doing so assures they’ll have the right mix of knowledge and experience to meet the challenges and identify the opportunities within that specific area. It’s also more likely that they have established links to potential buyers in the area as well," she adds. "Family, friends and colleagues can also be a great source for a referral. Visit the local real estate offices that services your area. Don’t be afraid to ask questions. You can also ask for and check references for your own peace of mind."

Meanwhile, the PropertyGuys’ survey findings also shows 67 per cent of respondents agree traditional real estate agents, and their commission fees, are one of the factors contributing to home price inflation. In Ontario, this number was higher at 70 per cent.

This survey also finds:

  • 66 per cent of homeowners polled say alternatives to traditional real estate agents will benefit home sellers.
  • Only 19 per cent of homeowners think their real estate agent was definitely worth the commission paid.
  • 87 per cent believe that how much money they have at the end of the day is most important when selling a home.
  • 50 per cent of Canadians disagree that real estate agents have your best interest in mind when selling a home.

While those in the traditional agent/broker segment may want buyers and sellers to believe that it is dangerous not to use an agent, the truth is that the real estate market has changed and savvy consumers, with the right tools, technology and know how, can sell their home without the use of an agent, Melanson adds.

"The folks that connect best with our concept are those that are comfortable with showing their house themselves and in engaging with others," he says. "These are confident sellers. They lean more on process and systems than they do on people."

The Canadian Real Estate Association politely declined to be interviewed for this article. However, for undecided consumers, the CREA’s How Realtors Help website provides information about realtors and the services they provide.

 

Posted in Insurance related, Non-insurance, Real Estate | Tagged: , , , | Leave a Comment »

Down-to-earth tips for retiring

Posted by GuruDan on October 5, 2011

5 Tips From Early Retirees

usnews

Susan Johnston, On Tuesday September 27, 2011, 10:36 am EDT

How couple was able to retire by 43 retiring01

At 31, Robert Charlton had grown disillusioned with his job as a technical writer. "The idea of doing a desk job for another 30 years seemed painful to me, so I came up with this idea of trying to retire before 45," he says. He shared the idea with his wife Robin, who was then 31 and working as a travel agent.

Robert read up on personal finance instead of hiring an adviser and looked at taxable accounts they could draw from before turning 60. During that period, Robin completed an accelerated nursing program to become a registered nurse. By age 43, they’d gone from $16.88 in their checkbook at age 28 to saving up enough money to leave both their jobs and live off the interest.

Now, years later, they travel the world, skydiving in New Zealand, hiking through India, sailing through the Chilean fjords, and documenting their adventures on their website, wherewebe.com. Although many people struggle to retire in their 50s or 60s, Robert believes it’s possible for others to retire early as he and his wife did. "Really, we’re very average people," he says, admitting that it’s harder, though not impossible, for those with kids. "We never had power jobs. We just both took intelligent steps." Here are some of those steps.

1. Cut housings costs. The Charltons spent a year carefully tracking their spending to see where they could cut back. But as Robert says, "the truth of the matter is, we really didn’t have that much fat to cut out." Still, they agreed to rent out half of the bi-level starter home they owned in Boulder, Colo., so they could pay off the mortgage and pad their savings. Switching from a 30-year to a 15-year mortgage also helped the couple reach their goal. "You save so much on interest that it does result in a higher monthly payment, but not as high you would think," says Robert. They later sold their house and put the equity into a bond fund.

2. Agree on your priorities. Instead of buying new cars, the couple kept their old ones, and Robin stuck to grocery shopping lists instead of buying whatever caught her eye. "That’s how he shopped [without sticking to the list] so he was cut off from shopping," she says. Keeping their shared goal in mind kept their eyes on the prize. "We were both on the same page," adds Robin. "We both knew we wanted to put the money towards experiences." However, because they value travel so much, the Charltons didn’t completely deprive themselves while saving up for retirement. As Robert says, it’s important to "balance living for tomorrow with living for today." If saving feels like too much of a chore, it’s easy to fall of the bandwagon.

3. Live below your means. Now that they’ve left the workforce, the Charltons live modestly by staying in hostels and focusing on less expensive travel destinations. They estimated needing between $30,000 and $40,000 annually, and they’ve managed to stay in that range, though they’re averaging closer to $40,000. Earlier this year, they splurged on a trip to Italy and Switzerland for their 25th wedding anniversary. However, Robert says, "we typically have tried to travel places where the dollars goes further, like Argentina and Chile, where the exchange rate was in our favor." Destinations like India and Nepal have higher airfare but low day-to-day expenses so they stay for several months at a time to balance out the airfare costs.

4. Stay in the game. Although the Charltons’ portfolio has had its ups and downs, they’ve resisted the urge to try to time the stock market or get out altogether. "We did some of our best investing during the bear market of 2000 to 2003," says Robert. "We bought stocks ‘on sale’ and reaped the rewards afterwards." Although he says they could have gotten a higher return on investment if the timing had been different, they also underestimated future earnings, so that helped them reach their target more quickly than planned.

5. Don’t rule out temporary work. Dips in the market have made it more challenging for the Charltons to live off their interest. So when Robert was offered a six-month consulting project in 2009, he jumped at the opportunity to rebuild their capital. Although he’d once dreaded going to work, he actually liked the temporary arrangement. "I genuinely enjoyed working hard during that window because I knew it wasn’t endless, which was the thing I found challenging early on when I first came up with this plan," he says.

Robin adds that they’re open to making adjustments as they go or returning to work if needed. However, she values the change to travel and be active while they’re young and healthy. "Working as a nurse, I realize so many people save so much and a lot of people don’t get all the years they thought they’d get," she says.

 

Posted in Insurance related, Retirement Planning | 1 Comment »

HSBC launches sale of non-life insurance business: sources

Posted by GuruDan on September 13, 2011

By Denny Thomas and Kelvin Soh
HONG KONG | Mon Sep 12, 2011 6:56am EDT

 

hsbc01

(Reuters) – HSBC Holdings Plc (HSBA.L)(0005.HK) has launched the sale of its non-life insurance business, sources told Reuters on Monday, a global division worth about $1 billion and now part of the bank’s plan to strip away non-core units.

HSBC, Europe’s biggest bank with a large presence across Asia, had sent out an information memorandum to potential buyers, with first round bids due by mid-October, a source said.

HSBC operates non-life insurance businesses in Britain, France, Hong Kong and Singapore. The Hong Kong and Singapore operations alone bring about $400 million in annual premiums, the source said.

HSBC’s non-life insurance businesses earned profit before tax of about $1 billion in 2010, according to a presentation made by HSBC in June.

"We do not comment on market rumors or speculation," a Hong Kong-based HSBC spokeswoman said.

The sources declined to be identified as the sale process was not public.

HSBC’s 16 percent stake in Ping An Insurance (Group) Co of China Ltd (2318.HK)(601318.SS) and 18 percent stake in Bao Vietnam, a domestic financial institution, were not part of the sale, the source said.

HSBC’s investment banking arm was running the sale process, the source added.

In May, HSBC announced plans to sell non-core businesses, which included shrinking its network of 475 U.S. branches to focus on the international business of U.S. clients and the sale of several European retail banking businesses including those in Poland and Russia.

(Reporting by Denny Thomas; Additional reporting by Kelvin Soh; Editing by Michael Flaherty and Chris Lewis)

Posted in Insurance, Insurance related | 1 Comment »

Signs of a Stable Economy…

Posted by GuruDan on September 1, 2011

June home price index rises for 7th month

reuters
(Reporting by Andrea Hopkins; editing by Janet Guttsman)
On Wednesday August 31, 2011, 9:25 am EDT

TORONTO (Reuters) – Canadian home resale prices rose in June, their seventh consecutive monthly rise and the biggest jump since August 2009, according to a report on Wednesday.

The Teranet-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes in six metropolitan areas, showed overall prices were up 1.7 percent in June from May.

Overall prices were up 4.5 percent from a year earlier.

The gain took the index to a new high of 144.27, with prices up for the third straight month in all six of the metropolitan markets surveyed.

"What is new is that in all six markets the June monthly rise was at least 1 percent, a first since April 2005. It was 2.0 percent in Toronto, 1.7 percent in Vancouver and Ottawa, 1.6 percent in Calgary, 1.1 percent in Montreal and 1.0 percent in Halifax," Marc Pinsonneault, senior economist at National Bank Financial, wrote in the report.

For five of the six metropolitan areas, the indexes were at all-time highs. The exception was Calgary, which is still 10.9 percent off the high of August 2007.

The 12-month gain of 4.5 percent, barely more than the 4.4 percent of April and May.

"It may seem surprising that 12-month inflation has not been accelerating in step with the recent pace of monthly increases. The reason is that in May and June 2010 the composite index was gaining more than 1 percent monthly," Pinsonneault noted.

In July, according to seasonally adjusted data from the Canadian Real Estate Association, market conditions were balanced in the country as a whole, but tight in Toronto.

The index tracks home prices over time for repeat sales, so properties with at least two sales are required in the calculations. The report did not provide actual prices.

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London unemployment surpasses Windsor

Posted by GuruDan on August 12, 2011

Windsor StarWindsor Star – Wed, 10 Aug, 2011

 

London has eclipsed Windsor as a poster child for high unemployment in Canada and officials here say they feel that city’s pain.

"We’ve had the dubious distinction of having the highest large urban unemployment rate in Canada for quite awhile and we can certainly empathize," said Ron Gaudet, CEO of the Windsor-Essex Economic Development Corporation.

London Mayor Joe Fontana has called an emergency jobs summit for Friday in response to a rising unemployment rate, which is now higher than Windsor’s.

London’s jobless rate was 9.1 per cent in July, which was the highest of any large urban centre in Canada, while Windsor’s had dropped to eight per cent.

"We’ve been there and we don’t want to go back," said Mayor Eddie Francis. "But when our rate was climbing, we made some very strategic decisions.

"We could have buried our heads in the sand and waited it out but instead we decided to reposition this region for future growth by reducing our debt, holding the line on taxes and modernizing our transportation infrastructure to make us more attractive to outside investment."

While Fontana couldn’t be reached for comment Tuesday, a spokeswoman for the London Economic Development Corporation said the summit is designed as a brainstorming session to develop some short-term strategies but that in the long term, London will be looking for provincial and federal job creation funding.

"We’re been relatively thriving in our region but now with modest declines in our employment numbers, we have to redouble our efforts to develop long-term job creation strategies and the summit is the first step in that process," said Kadie Ward, director of marketing and communications for the LEDC.

Francis said he reacts cautiously to unemployment numbers "because they can turn on a dime but the biggest mistake we can make now is to think we’ve turned the corner and take our foot off the gas.

"We have to remain aggressive and continue to focus on our job creation and investment strategies."

Francis, who was out of the country on economic development-related business, declined to say where he was travelling but said he expects the trip to bear investment fruit by the fall.

In July 2009, Windsor’s jobless rate peaked at 15.2 per cent and has been either the worst or second-worst in Canada for most of the last 24 months, until Friday’s surprising figures were announced.

In the past 12 months, Windsor’s unemployment rate has fallen by 3.4 percentage points while London’s has increased by 0.9 percentage points.

Gaudet said the temptation is to "start high fiving when the rate drops and going into deep bouts of depression when it increases, but job creation is a long term process because it’s very difficult to move the numbers in any appreciable way in the short term.

"The important thing is to avoid finger pointing and to tap into municipal, provincial and federal job-creation strategies as much as possible.

"And what we have to remember is that we are all part of the Southwestern Ontario economic region and when one community hurts, we all share that pain," said Gaudet.

While some point to the fact that Windsor’s labour force has fallen by nine per cent in the past 12 months, suggesting that people have either left the city or given up on finding employment, which can have a positive impact on the unemployment rate, StatsCan’s figures are generated by the same method in every city across Canada.

In July there were 1,200 fewer people in Windsor’s workforce compared to June, 900 more people working and 2,000 fewer people unemployed.

In London, there were 300 more people in the workforce compared to June, 800 fewer people employed and 1,000 more people unemployed.

It’s expected that London’s unemployment rate may get worse before it improves, with Ford planning to close its St. Thomas assembly plant in September, throwing an additional 900 area residents out of work.

Closure of a parts supplier which builds seats for Ford is expected to cost the area a further 400 jobs.

London’s unemployment figres includes St. Thomas.

Fontana’s summit is scheduled for Friday and will include London region politicians, labour officials and representatives of business, manufacturers, post-secondary institutions, health care, home building and real estate.

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Rent or Buy?

Posted by GuruDan on August 11, 2011

Posted in the Canadian Press by Joanna Pachner, On Tuesday July 26, 2011, 11:03 am EDT

Home ownership, the Canadian Dream—Barry Bradey lived it with gusto. Over the past decade, the health and finance entrepreneur owned three houses in the affluent Toronto suburb of Oakville, and watched each soar in value. But after a divorce and a business failure, he needed cash on hand. So last fall Bradey (who asked that we use a pseudonym) did some back-of-a-napkin math. The 3,500-square-foot house he wanted would cost about $850,000. Even with $400,000 down, the mortgage would cost him roughly $3,000 a month. Add property tax and maintenance and "that’s $5,000 a month before you turn on the lights." Utilities, insurance and various amenities would be another grand. He also figured the downpayment came at an opportunity cost of about six per cent, equivalent to another $2,000 or so a month. He bounced these numbers off a local realtor friend; she thought the carrying cost should be closer to $12,000. Nevertheless, she insisted the house was worth the money because it was "an investment."

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Bradey didn’t buy that. To rent that same house would cost him—all in, and worry-free—about $3,500 a month. A 53-year-old father of two with a startup venture underway, Bradey did the financially prudent thing. He now rents a large townhouse in the same neighbourhood for $2,200 a month. "With a house, its market value might go up or down, but it would cost me $8,000 to live there," he says. "My logic is, renting gives me flexibility. I won’t have to pay five per cent [commission] if I want to leave."

This is not yet another story about the real estate bubble. It’s a story about why more of us don’t do what Bradey did. The belief that we’re not responsible adults until we own our home, whether or not we can afford it, has distorted and stigmatized the cheaper and safer alternative: renting. And we’re literally paying the price.

Over the past decade, as the value of the average Canadian home doubled, and tripled in some areas, rents remained stable or even declined. As a result, it now costs more than twice as much to own that average home as it does to rent it. In May, Ben Rabidoux, an Ontario financial adviser (and an unapologetic renter) who runs the Economic Analyst blog, illustrated the unprecedented gap that’s opened between the cost of renting and owning with a series of fever graphs charting rents and housing prices in seven cities across the country. The lines track more or less in sync until a decade ago, when they diverge as home prices shoot toward the stratosphere, the gap growing wider with each year, like huge jaws swallowing homeowners’ retirement savings and vacation budgets and pushing them further into debt.

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Even before the recent run-up, renting suffered under the perception it’s money thrown away that could be put toward building equity—a myth the surging home values have transformed into a near religion. Fed by this belief, Canada’s home ownership rate rose to eclipse most other rich nations’, up almost 10 per cent since 2000. Today, two-thirds of households live in privately owned homes, rising to 70 per cent in Vancouver and 74 per cent in Calgary. In New York, Paris or San Francisco, that proportion is closer to a third. In fact, in much of Europe, lifelong renting is the socially respectable norm, backed by rent controls and tenant protection laws.

With widespread warnings that we’re approaching the peak of the housing boom, with Canadians more indebted than ever, largely due to their outsize home investments, and with cities like Toronto boasting some of the lowest rents among major world centres, why aren’t more of us re-examining the math? The reasons are cultural and emotional, backed by ill-conceived public policy. This Canadian Dream is an expensive delusion. There’s never been a better time to rent.

Every asset class has standard ways to measure value. For stocks, there’s the price-to-earnings ratio; for bonds, there are different yields. For real estate, the typical valuation ratios are price to income (what you can afford to buy) and price or buy to rent (what you could make in cash flow). According to Ed Sollbach, a Desjardins Securities strategist, the buy-rent ratio for the four biggest Canadian cities is currently above 2:1 —meaning it costs twice as much to buy as to rent the average home—and 3.1:1 in Vancouver. That ratio, it bears noting, only compares rent to mortgage costs; it doesn’t include the various expenses entailed in home ownership—taxes, maintenance, insurance—that can more than double the monthly outlay.

It’s long been established that, over the long term and after adjusting for inflation, housing produces almost no return on investment. The calculus looks even bleaker for people who don’t hold on to their properties for long. And that’s most of us. In Vancouver, for example, a recent survey found that half of new condo buyers expected to live in their units less than six years. When commission and closing costs, maintenance, moving and other expenses are added up, the sum can easily eclipse any equity amassed in that short time—even in a city with a skyrocketing condo market. What’s more, in the first years of ownership, your mortgage payments are going primarily to paying interest on the loan. Renters and owners both "throw money away"; the former just toss it to landlords and the latter to bankers. Or as Rabidoux, who’s writing a book about our housing obsession, puts it, "the majority of new homeowners are still renters; they’ve just gone from renting space to renting money."

barnowlmosscreek

While financial gains from home ownership are iffy at best, the opportunity cost is significant. When Alexandre Pestov, a strategic consultant and research associate at York University’s Schulich School of Business, compared buying a two-bedroom Toronto condominium to renting it over the past 25 years, he found that the renter ended up $600,000 richer than the owner if he invested the spare cash in low-risk bonds. Several other studies have reached similar conclusions: renting while you conservatively invest your savings is financially smarter than buying a home.

"We have a very distorted picture right now," says Pestov, "because of the very low interest rates and the influx of speculative capital." While these factors have propelled the buying spree, they’ve also been great boons to renters. The condo boom, for example, owes a lot to "specuvestors" who rent their units before flipping them. Since they’re looking to cash in on the price appreciation, as long as the rent covers their mortgage payments, they figure they’re ahead. Cheap mortgages, combined with rent control laws in most large provinces (except Alberta), have meant that this new stockpile of condos has suppressed rental prices. "In Toronto, it’s a big factor," says Vince Brescia, president of the Federation of Rental-housing Providers of Ontario (FRPO). "This is brand new product, so it’s very competitive."

Rents were also hit by a drop in demand as most people who could scrape together a downpayment rushed to buy. For example, in Ontario between 1996 and 2006, and especially in the last decade, tenant households dropped by 84,000. "It’s unprecedented," says Brescia. "You have to go back to the 1940s to find the last time tenant numbers declined." Facing sliding demand and a surging supply, landlords refrained from jacking up rents. As a result, the growth in rents in Ontario has not even kept pace with increases allowed by rent control laws.

This confluence of trends has made renting uncommonly affordable. In fact, recent studies by both the International Monetary Fund and the Organization of Economic Co-operation and Development concluded that Canadian renters get a better deal compared to their owner counterparts than renters in almost every other wealthy country.

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Still, many people factor in an ownership premium—the amount they’d pay over and above the cost of renting for the freedom, stability and simple bragging rights of having their own place. But it doesn’t take a new homeowner long to discover just how large that premium can be in money and time: the constant outlays on maintenance and repairs (at least one per cent of the purchase price per year, experts estimate, and as much as four per cent), the chores and DIY projects that eat up weekends, the pressure to keep up with the ever-gentrifying Joneses. In fact, studies find that homeowners are no happier than renters and have higher levels of stress, largely due to the financial burden and greater time constraints.

Your lifestyle suffers, your worries mount—and yet, no matter how much data you throw at people, there’s an ingrained belief that being a homeowner signifies maturity and that renting connotes instability and transience. Moshe Milevsky, a finance professor at Schulich and one of Canada’s best-known home-ownership skeptics, has long argued that for young people with limited means and unrealized career potential, stowing most of their wealth in a single illiquid asset is foolhardy. Today, he thinks just about anyone would be better off renting. "I really wish I could sell my house and rent. Immediately!" he says. "The market is so overvalued. I’d sell to the biggest sucker. But my wife and kids would kill me." That’s because, for most of us, financial considerations are only part of the equation. "The decision to purchase a house goes well beyond the practical," says Milevsky. "It’s part of people’s identity."

This feeling is particularly pronounced in the cities that have seen the biggest migration to ownership. Take Vancouver: "There’s always been a high home-ownerships rate here, but through this recent mania, the stigma on renting has grown more extreme," explains the Vancouver Real Estate Anecdote Archivist (VREAA), a blogger who’s tracked the housing run-up since early 2008 (and whose unpopular opinions have led to a carefully guarded anonymity). "It’s very [common] for renters to go to a barbecue and feel sheepish when they speak to the brother-in-law or colleagues. And if you claim online that you can afford to buy but choose not to, you’re jeered as clearly lying."

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While the average price of a Vancouver home is now more than 11 times the average family’s income, the rental market has stayed earthbound. But VREAA notes that the bubble has raised the "social cost" of renting. "[It’s] become broadly socially synonymous with being relatively impoverished and disenfranchised," he wrote in a post that drew passionate debate. One respondent noted that people are renting luxury units in new buildings they can barely afford to give the illusion they own. Another said that even though renting saves him and his wife $4,000 per month, in social terms, "we’ve never felt poorer."

Vancouver may be extreme, but the stigma is just as real elsewhere. Bradey, the new convert to renting in Oakville, knows that his friends, who are largely well-to-do and own their homes, see his move as a regression. "Even in my own mind, I probably downgraded [my social status] from an A+ to a B+," he says. Still, he believes that, were most people who may pity him now forced to go without income for three months, they’d be in trouble.

Canadians’ attitudes about housing have long been shaped by government policies and the tax system. There is a large discrepancy in taxpayer subsidies for owners and tenants, according to a study released last fall by the FRPO and the Canadian Federation of Apartment Associations (CFAA). The average homeowner receives $1,823 a year through programs such as tax-free capital gains on the sale of principal residences and the Home Buyers Plan that lets first-time buyers withdraw money from their RRSPs for down payment. Renters, meanwhile, get $308—even though, on average, they have half the income of owners. CFAA president John Dickie argues that this situations benefits neither taxpayers nor the economy. "The government should get out of the business of encouraging people to own," he says.

There’s a broader economic case for encouraging more people to rent. Aside from consumers’ dangerously high levels of debt, having so much money concentrated in housing makes the whole economy less efficient. In his 2010 manifesto Renting the Dream: Housing in America after the Great Reset, University of Toronto professor Richard Florida goes so far as to paint home ownership as a relic of a different time. "Owning your home made sense when people could hope to hold a job for most or all of their lives," he writes. "But in an economy that revolves around mobility and flexibility, a house that can’t be sold becomes an economic trap," preventing people from moving to where the jobs are. Studies in both Europe and the U.S. corroborate this argument, showing linkages between high home ownership rates and unemployment.

In the glow of our pride of ownership, we tend to forget that owning your residence is hardly the global norm. Quebec, where home ownership rates have been rising, remains a renting-friendly society, at least in the urban centres, and Montrealers who move to Toronto are often shocked by the pressure they feel to buy. In Switzerland, Sweden and other parts of Europe, particularly where rental markets are highly regulated, the majority rents. In fact, Germany, Europe’s economic engine, has the European Union’s highest proportion of renters, according to London-based property research firm RICS. In Berlin, 90 per cent of residents rent; in Hamburg, the share is 80 per cent. And renters aren’t the lower-income contingent: professionals who spend half their earnings on rent are not uncommon. While Germans do want to own, they don’t feel pressed to buy when they can’t afford to, the way Americans, Canadians and Britons do. The difference can be traced to real estate market trajectories: Over the past decade, while housing bubbles percolated through much of Europe and in North America, home values rose less than three per cent in Germany. Renting has no stigma because Germans don’t think of home ownership as an investment opportunity of a lifetime.

European governments are also less in-clined toward home ownership boosterism. In parts of Europe where renters dominate, tax regulations don’t favour owners, rents are tightly controlled, unlimited-length leases are common, and supply of attractive apartments is plentiful. As a result, notes Dickie of the CFAA, European renters don’t move as often as North Americans.

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The European attitude is in line with the broader social trend of consumers focusing more on services rather than assets. Ten years ago, American economist Jeremy Rifkin predicted the onset of "the age of access," where we’d pay to use things, not own them. We already see this in other sectors, from the rapid growth of car-sharing to tech tools being rented off the Internet cloud. Richard Florida, for one, advocates what he calls "plug-and-play" housing, where flexible rental arrangements of furnished and unfurnished residences with hotel-style amenities will serve the increasingly mobile workforce.

In the U.S., after the fiasco of George W. Bush’s "ownership society," a shift in mentality has already started. Home ownership has experienced the biggest decline in two decades, and the number of renting households has been growing by about 700,000 a year since 2006. In New York, San Francisco and other thriving cities, brokers are reporting sharply rising demand for luxury rentals, as affluent people who could afford to own decide there’s no cachet anymore in being a homeowner, and lots of risk. Indeed, in a recent poll, 71 per cent of Americans conceded that renting has advantages over buying.

"Renting has become culturally accepted in the U.S.," says Desjardins strategist Sollbach, who’s tracking the market correction. Ironically, this shift is happening at a time when the plunging prices in some regions make buying advantageous. "But Americans have had such dramatic losses that the whole idea of owning has been drummed out of people’s minds," he says. "They’ve gone through a life-death experience." The equity markets have taken notice: the values of American apartment REITs have risen 72 per cent since early 2010.

Even in Canada, real estate dropouts seem to be on the rise. In the past year, major cities have occasionally seen bidding wars—not for homes but for prime rentals, with choice units renting for higher than asking price. But a broader shift likely won’t happen until some economic factors—most notably mortgage rates—change. We prefer owning—even though, at $366,000, the average Canadian home today costs more than twice as much as its U.S. equivalent; even though a small increase in the lending rates will push scores of over-leveraged homeowners into crisis; even though Bank of Canada governor Mark Carney is practically guaranteeing that those higher rates are coming. We’re still buying; in May, house prices rose 8.6 per cent nationally, and a stunning 25.7 per cent in Vancouver.

No one argues that owning a home is, in principle, a bad idea. But today, in this market, renting is a better one. After 12 years of rising real estate, a renter goes against a powerful cultural tide. But even if the housing bubble continues to inflate for months or years to come, it’s high time to recalculate the ownership premium we are willing to pay.

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