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Friday, June 25, 2010

Don't Gamble with your House

Some people like to gamble. They think its the easy way to either make money or save money. If you ever heard a "hot tip" my advice to always be skeptical and do all your research before jumping on proverbial bandwagon.

Let me elaborate.

A few months ago economists from the TD Bank and CIBC predicted that housing prices in Toronto might fall as much as 10% by 2012. That doesn't mean they will fall, nor does it mean they might fall the full 10% they described. It might only fall 1% or it might go the opposite way and housing prices might go up between 1 to 10%.

Some homeowners however have apparently thought this means this is a good time to sell their house, but instead of buying a new house they've opted to find a place to rent. (See Homeowners Staying out of Real Estate Market After Selling) The problem is that renting a house in Toronto is also ridiculous expensive and comes with its bidding wars involved. There are a lot of people out there looking to rent.

In fact Toronto and Vancouver have two of the lowest vacancy rates in all of Canada. The vacancy rate in Toronto is a mere 2.2% and Vancouver isn't much better at 2.7%. This makes finding a suitable place to rent both difficult and expensive. The two cities are epicentres for Canada's real estate boom, but its only booming because there is such a huge demand for housing. The demand is driven largely by university graduates who never leave and the constant inflow of new immigrants who need housing, so much so that the demand for houses and apartments never disappears.

Lets say you have a house worth $1 million right now. If you sell it, according to the TD Bank & CIBC, your house (or one equivalent to it) may only be worth about $900,000 two years from now. It might or it might not. Some home owners are apparently willing to take that gamble and are selling their houses, renting a place, and then waiting for house prices to cool down.

So they find a place to rent at $2,000 month... they wait two years and spend $48,000 on rent. What if housing prices only dip by 4.8%? They just wasted $48,000 which could have been spent paying off their mortgage. Or worse, housing prices could up instead and they will be kicking themselves for selling a home they had purchased when prices were still reasonable.

Sure, you might be save a bit of money on land taxes and maintenance, but you're also losing the convenience and security of owning your own place. There is a reason people prefer to own their home instead of renting. Its a well known fact "Renting is for suckers!"

My advice is that people shouldn't rush into this kind of gamble based on the speculations of economists. Even economists admit they can be wrong and frequently are. All it takes is an economic blip to throw all their estimates out of whack.

Look before you leap off the deep end.

See Also:

Toronto Home Bidding Wars Are Back

Why Home Owners Want to Throw Recycling Rules in the Garbage

What is Your Listing Agent is Saying About Your Home?

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