1000MonkeysOnline | Real estate – Sound investment or gamble?
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09 Dec Real estate – Sound investment or gamble?

I grew up listening to people tell me that buying a house was the best investment decision I could make. But I’m not sure that holds true in today’s environment considering the massive disconnect between home prices and household incomes particularly in major Canadian cities like Toronto.

According to the 2016 census, the median household total income in Ontario was $91,089 and lower in Toronto ($82,859). On the other hand, most recent data from the Toronto Real Estate Board (TREB) said the average home in the Greater Toronto Area (GTA) sold for $775,546 in September – the average includes townhouses and condos, detached home prices seem to average well in excess of $1 million.

The disconnect seems to be even more significant when you look at what appears to be an increasing proportion of millennials who have recently graduated from university and are looking to start families. The majority of these folks make less than the average income, and need to take on huge mortgages in order to own a home – with average monthly mortgage payments consuming up to 80% (or more) of after-tax monthly income. And that too with interest rates close to all time lows.

What happens if interest rates move higher? I’m not sure many people will be able to make ends meet – in addition, home affordability will take a hit, pushing housing prices even lower. With the majority of home buyers likely stretching their budgets to buy a home, the repercussions may be significant.

In addition, the idea of taking on a huge mortgage to buy a home seems to go against tried and tested wisdom i.e., keep debt low because it will help you better weather the difficult times. For these reasons, buying a home right now seems like a very risky investment.

Renting make be a better option – less risky and less expensive. And you’ll be able to sleep better at night irrespective of what happens to home prices or interest rates.

-Shine