So in my
last blog article, I was talking about this blog article from the Royal Bank (RBC) blog entitled, "
Just Give Me Four Walls" where they're talking about how students can get a mortgage. The discussion was about what a great investment housing currently is, and how we can take out mortgages with no down payments. One of the RBC bloggers responded by saying how great real estate was because in the last 10 years, housing value has increased by 65% (or 5.3% per year). I responded that it wasn't that great considering the Canadian stock market in the same amount of time had increased by 296% (or 11.1% per year).
A new guy named Scott decided to counter my arguments:
Home ownership is with out a doubt one of the best investments you can make. [...] What I present as my argument for the home ownership is this:
1 - Not only do you have the value of your house increasing over time, providing more cash in your pocket when you sell, but you also have to factor in the money that is not going to rent as savings in your pocket. Sure you dont see it until you sell, but future you will be happy.
2- As for Chris' point about a mutual fund being better, I must argue against that. Yes, investment products such as mutual funds are great, and you should have these as well (consult your local RBC banker for your own tailored plan), however the housing market is no where near as volatile as an index linked fund (find me a year in the last 10 where the average home price has dropped in Canada? The same cannot be said for an index fund). And if you can only afford one option, if you take your hard earned money and put it into that fund, you are still needing to pay for somewhere to live (unless you are ok with your parents basement, thought it does make meeting girls harder)so there goes any profits you could have seen in the way of rental payments to a landlord you probably don't even like.
There were several points that are completely untrue:
- The housing market is no where near as volatile as the stock market.
- Home ownership is the best investment you can make.
- The average home price has not dropped in the last 10 years.
I keep hearing similar arguments over and over, and they're just plain wrong. I decided it was time to bring in the big guns. Please help me welcome our guest blogger, Myron, who's my senior housing bear correspondent. (Housing Bear denotes someone who's negative on housing).