Blessed by the Potato

One of the downsides of new, more efficient lightbulb technology (CFLs and now LEDs) is a nearly paralysing amount of choice. No longer do you go down to the store to grab any old lightbulb, evaluated on at most one or two dimensions (wattage, occasionally long life or a bluer hue). Now there are dozens and dozens of varieties of CFLs.

Many of them attempt to tackle the unfortunate downsides of CFLs in one way or another: instant-on*, dimmable, 3-way, outdoor temperature tolerant — all the sorts of things one never had to worry about with incandescents. Plus with a series of phosphors rather than simply heating an element up, you get to pick your colour temperature and overall spectrum. Unfortunately, I think that’s one of the more important aspects of a CFL for giving good quality light, and it’s one of the only measures that’s not listed on the box. I’m pretty sure we’ve got a spectrophotometer at work to produce graphs like this one below, and I must say I’d be sorely tempted to buy a dozen CFLs and plot out their spectra if someone were to fund such a study. Wayfare says it’s just another way for me to try to get away from writing my thesis, but I think it would be a valuable contribution to society.

Unfortunately, I’m a pretty technical guy, and even I’m not sure I could translate such a graph into a useful buying decision of whether I’ll qualitatively like the light output of my bulb, so maybe there’s a good reason for that information not being widely available.

Another “problem” with CFLs is that they last so damned long. As far as my experience tells me, they last forever (haven’t had one burn out yet, though the oldest is only just coming up on ~7 years old now). So it’s becoming such a very infrequent event that I actually haul my butt down to the store to buy a CFL, as the last holdout incandescents die. The last time I had to buy a lightbulb was over a year ago: even if I did manage to make a good decision last time, I can’t remember which model I bought, and even then the selection I’m facing is almost totally new and revamped in that time. They even have lightbulbs now that I don’t know how they work (these CFLs with LEDs in the base for “nightlights” — but I didn’t take the time to find out if they needed a special base/switch, or how the LEDs are lit up if the switch is off, and now my curiosity is killing me. Is there a tiny capacitor/battery in there to power the LED while the circuit is closed??).

And unfortunately, there are bad CFLs out there, so it’s important to make this choice well. There are a few left behind in the Toronto house from the landlord or previous tenant that we just don’t like: they’re slow to come up to full brightness, and the light is very “harsh”. Conversely, the Ikea ones we had put in the kitchen of our old house we didn’t like for being so “warm” as to cast everything with a sickly yellow pallor (the colour depth really didn’t seem very good).

* – which are the ones I ended up settling on, and have to say I’m quite disappointed in. Instead of having a 1-2 second delay before the light comes on, it does come on instantly, but only at ~20% brightness, and then very gradually warms up. I prefer the slight delay and then coming on at ~70% brightness of more normal CFLs. Once it finally warms up the quality of the light seems pretty good though.

The Star’s Moneyville section had another real estate fluff piece on Friday, aiming yet again to reassure people that a housing correction won’t happen here. I was at first just going to let this one slide — after all, this is going to be my 4th post in a row on real estate, so sorry for those that are interested in other topics. It doesn’t really raise any new points (except for the incorrect one about no downpayment mortgages being “illegal” — they’re only illegal without insurance, but they’re all CMHC insured, so it’s a red herring), and it was quickly dismissed by people in the forums, over at Financial Insights, and even the big dog took a bite out of it over at Greater Fool. Where this takes a turn is that in the comments section of the Greater Fool blog post, Ian Lee comes in to try to clarify his points (see comments #75, 96, and 146). So now there’s some new points to counter. For the most part his arguments apply more to reasons why a housing downturn won’t spiral out of control and take the rest of the banking system out with it (AKA, the “US style” crash), rather than why housing won’t go down in the first place.

It’s a long conversation thread over there, with many people going back and forth, so I’ll just focus on a few keys points here.

Nothing he’s said so far has made me reconsider that buying a house now, in Toronto, would be anything but a terrible idea. Anyway, on to the specifics:

“But you are assuming that because you lose your job, you immediately list your house for sale AND reduce your asking price. A large number of mortgages issued today are issued to two income households which diversifies risk for both the bank and the borrower. Even if you decide to list your house, you list it at what the real estate agent recommends AND if you are clever, you will NOT disclose your unemployed status to the broker, which would reduce your negotiating power”

This all depends on whether two incomes are needed to keep the property, and my understanding is that in the expensive markets (Toronto, Vancouver) they are. If that’s the case, requiring two incomes to afford the house increases risk. When you have two wage earners the odds of either one suffering a job loss is higher than the odds of just one person suffering a job loss: basically, you’ve bought two tickets in the “unemployment lottery.” If only one income is needed to stay afloat, then yes, it adds redundancy… but that is not how it’s working in many cases these days. For many couples that second income is a mandatory component of the household’s income statement, a requirement to keep the household operating. That means systematic risk has been increased by this demographic shift.

“In fact, Canadian home ownership is at the highest level in our history at 67%. AND the mortgage delinquency ratio – which must be reported to Bank of Canada by the banks is less than 1% (compared to the USA where 1 in 4 homes are under water OR in foreclosure)”

I think his numbers are a bit dated — the spike has been tremendous in the last few years and is closing in on 70% now. Either way, that rate of home ownership is several points higher than it ever has been in our history, and the same thing played out in the states: people who perhaps had no business owning homes ended up buying them anyway, because it was trivial to get a mortgage.

Furthermore, you must realize that foreclosures lag prices. The fact that foreclosures are as high as they are in Canada is an extremely troubling point. In many major markets prices have been increasing at a very decent clip for several years now. Even with a zero downpayment, a borrower in trouble should be able to sell their house and come out whole after just 7-10% increase in prices, which is just a year or two of appreciation these days. So if anyone is getting foreclosed on, it’s either due to extremely bad lending (where the homeowner can’t even budget for repayments a year into the future), or because the foreclosure rate is very high in the non-bubbly areas, making the national average rate look “normal”. Remember, in the US the foreclosure rate was also quite low even while trouble was brewing.

“Concerning my comment that the US housing crisis was caused – NOT by market failure or by government failure – but by what I called “Congressional failure”, I can provide the approximately 60 slides of a paper that I presented at a conference called “Financial Armageddon” at Carleton University in 2009. EVERY slide I presented was publicly sourced from the Federal Reserve or the US Treasury or from Fanny or Freddie or HUD or the US Census Bureau or quotes from the Congressional Record of Barney Franks or Chris Dodds. These slides are remarkably illuminating and demonstrate my hypothesis that Congressional policy caused the housing bubble and then the housing collapse. […] In my Financial Armageddon paper, I provided empirical data to show a large influx of new first time buyers into real estate, that upset the equilibrium or balance between supply and demand, causing a bubble to form i.e. excess demand chasing limited supply. It was caused by the US Congress watering down the mortgage eligibility rules e.g. zero down payment, which encouraged large numbers of low income people to buy homes. Then when these low income people realized they could not afford the new home, they walked away (no recourse in the US), turning the bubble into reverse – into a collapse.”

I’m so puzzled by his views… Except for the non-recourse part (which as we’ve seen with recourse states is a small factor), how is this different than the scenario where CMHC allows for low/no downpayment, 35-year mortgages in Canada? We had a large influx of new buyers because of the rule changes. We shot our home ownership rate up 5% in 5 years in the midst of lowering interest rates. We had prices increase far beyond the historical norm for several consecutive years. How can you then conclude that our outcome is going to be so dramatically different than what the US experienced? [Yes, I will concede that it will not be as deep or as fast a correction, but house prices are going down, especially in TO and Van].

“I concluded that, going forward, we will experience what we experienced in the past with housing prices that overshoot. In the early 1980s, house prices went flat line for several years as they did again in the early 1990s.” [… he is then challenged by the fact that there was in fact a fairly substantial crash in Toronto in the early 1990’s …] “again, it depends on which real estate market you are using. Nationally, it was a wash – although yes, TO and VAN declined. No disrespect to anyone – but Toronto (3 million?) and Vancouver (2 million?) are not the totality of Canada’s 34 million residents.”

I’ll be the first to say that real estate is local, and that most of Canada will not be hurt too badly by what’s coming. But, those are huge local markets (their metro areas combined are 1/5th of Canada’s population). For me, I’m looking to move to Toronto, and chose to rent because the local market has gone insane. If you’re being interviewed for the Toronto Star, it’s very disingenuous to say that Canada’s [national average] housing will be ok, but snicker behind your hand at the suckers in Toronto and Vancouver who are going to get wiped out.

[Ok, yes, that’s a bit of hyperbole]

I get a annoyed when people imply (or explicitly state) that a rental house cannot truly be a home. One reason seems to be the idea that since it’s “not yours” you can’t take any pride in how your place looks, and will not do anything to it, and will be at the mercy of your landlord.

Of course, Wayfare and I don’t buy into this at all. For making our place a home, we can paint as we wish (though our current and previous place had such good paint jobs with tasteful colours that we didn’t want to, though we did paint the institutional white of our apartment). For larger improvements it’s not that we can’t make them, it’s that we can’t make them without the landlord’s permission. We’ve found that landlords have been quite open to letting us work on improving the property, and in some cases have even been willing to share costs — after all, most things that make the place a nicer home for us also make it more attractive to future tenants. Some things are kind of halfway between a repair and an upgrade, and they’d be responsible for repairs anyway.

The biggest thing so far has been the installation of a dishwasher in the kitchen of our new place. There, we paid for the dishwasher itself (though our landlord sourced it through some discount supplier he knows), and our landlord covered the labour to remove the shelving, and the plumbing/installation. We didn’t mind paying $400 to get the use of a dishwasher for a few years, and then the landlord will have a dishwasher at a discount that can make the property more attractive for the next tenants. Win-win.

And of course, that idea of win-win is important with these sorts of negotiations: you have to make it worthwhile for the landlord as well as yourself, that’s the reality of the situation. But that’s not really a high hurdle to hit. Another big improvement to our current house was the installation of central air conditioning: we didn’t even (explicitly) pay anything towards that, we just had to point out that it was one of the only houses we were looking at that didn’t have central air, and the landlord agreed that it was becoming a standard feature. He agreed to install central air if we took the place a few weeks earlier than we were originally trying to negotiate for.

We’ve also made numerous smaller improvements on our own to this pre-war bungalow. We planned on being here for a few years at least, and understand that most small renovations do not provide any return at all, at best a recovery of some of the expense, even in an owned house. For the most part, you spend money on renos because that money spent on improvements makes the house a nicer place to live while you’re there, which brings you joy. It’s a cost of living. People shouldn’t look at them as something they want to get paid back on, and that to avoid spending any money on a house just because it’s owned by someone else is a way of thinking that doesn’t resonate with me.

Fortunately, Wayfare happened to be creating a list of all the stuff we’ve done just to keep our landlord in the loop, so it’s easy for me to cut-and-paste for you what improvements we’ve made to our home:

• Added a door to the bathroom cupboard [The bathroom has a nook with shelves for linens and other storage, but it was just open to the bathroom. We put in an accordian door to turn it into more of a closet.]
• Rehung the door to the middle bedroom [This was a repair rather than an upgrade — the door wouldn’t close properly because it was hung at an angle. Just had to take out the hinge and screw it back in properly/level.]
• Added a door handle to the door to the basement [The door down to the basement just had a hole from where the knob had been removed — here’s where our landlord gets a negative mark, as in my opinion that should have been fixed before we moved in, but he figured it also had a hook/latch to keep it closed, so it still functioned. We put an actual doorknob on it.]
• Put a peephole into the front door [Self-explanatory. For security reasons.]
• Installed a screen door closer and spring on the front door
• Took down the broken mailbox and replaced it [Technically, the old mailbox still functioned at its primary objective of holding mail, but failed at its secondary objective of keeping said mail dry.]
• Replaced the vent cover in the kitchen [Largely cosmetic: the kitchen has a chess-board inspired white and black tile floor, yet had a light brown vent cover. We got a black one to match. Plus the old one was filthy.]
• Added a oak hand railing to the basement [This one I think should have been done long ago, I don’t know how they had a staircase with no railing. We put one in.]
• Added a new baseboard and quarter round around the landing to the basement to plug up some cracks [Largely cosmetic, but with all the following cosmetic improvements to the basement it went from looking really unfinished and ancient and utilitarian to being a rather nice semi-finished laundry room and storage space.]
• Removed all of the plastic clothes dryer venting and installed new metal piping. The dryer now vents outside rather than in-between the walls. [Yeaaaaah… I’m pretty sure that vent do-hicky was supposed to go outside, and not into the void between the inner and outer wall.]
• Cleaned out under the basement stairs and threw out the paint that had turned solid as well as all the broken glass. All of the current paint is now stored there along with the drawers that were taken out of the kitchen when the dishwasher was installed.
• Installed doors to the area under the stairs to keep it out of sight. [The space under the stairs was just a mess. It’s both cleaned up and out of sight now, with a nice white-painted plywood triangle covering things up. Looks downright finished now.]
• Removed the broken blinds in the front bedroom and replaced them with a roller blind. [The blinds were left behind by the last tenant anyway.]
• Fixed the stove so that the plug on top now works [The actual problem turned out to be simple to fix, but I didn’t discover that until after I had taken the stove halfway apart.]
• Scraped the cement off of the interior basement wall near the laundry area.[Again, just making it look more finished.]
• Replaced the rotting shelves in the basement with melamine shelving
• Replaced the plywood shelves in the bathroom cupboard with melamine shelving [Yep, don’t know who would have put their towels that they’d put on their clean naked body on those shelves. Ugh.]
• Cleaned up the caulking and grout in the upstairs bathroom and added white quarter-round around the side of the counter where it meets the wall
• Fixed the missing wallboard in the middle cupboard space in the basement [There was just a weird hole in the wall in the basement. We figured that the first time the cat got into the basement, she’d go straight for that and get covered in filth and insulation. It had to get covered up.]
• Replaced the shower head [Water-saving, and it now has a hose/wand!]

I think some other items she forgot include rehanging the fridge/freezer doors so they open the right way around, and also levelling the fridge, updating some of the smoke detectors that appeared to be over 10 years old (and putting in a photoelectric type near the kitchen/bathroom), and the biggest one, actually getting damned electrical service into the garage, with a lightbulb! (It looks like there was a light bulb and electrical in the garage at some point in the past, which had then been torn out… fortunately for us, there was still a hole into the house for the conduit, which I guess is a kill-two-birds-with-one stone solution, as we also plugged that hole in the foundation between the house and the garage :) One that I think may help our health was covering up the hot water pipes with foam pipe insulation. The pipes were wrapped with “some kind” of insulation — it appeared to be old cloths, and they had basically fused to the pipes. We had to wrap the foam over whatever-it-was to seal it in, rather than mess with trying to remove the old stuff from the pipes. That alone made a huge difference to the appearance of the basement, as those ratty cloths hanging from the unfinished ceiling were downright creepy. Who knows what may have been growing in that browned fabric. Oh, and I rewired the phone and cable lines. Much better reception now :)

So you can see that it’s not very hard to make your space your own, even if you rent. You just have to work things out with your landlord. Most small improvements that people would want to make are quite easy to negotiate — indeed, your landlord may be thrilled that you’re helping to make the place better, and may share costs with you. Granted, more major renovations, such as redoing a kitchen or putting an extension on a house are probably nonstarters, but that’s not a big loss as you have the freedom to move as a tenant to find a place that suits you for a medium-term time period. You probably aren’t in the situation where you’ve got a starter home that’s just too small for you after a few years, and find it may be easier to renovate than move. That said, commercial tenants with aims to stay in one spot for a decade or so very often do work out renovation plans for their space, and it’s not like it’s illegal for a residential tenant to do the same: it’s just rare and tricky. But I suppose if you absolutely had to have granite countertops and were willing to pay for them anyway, then the only thing stopping you is your own negotiation skills.

I fell for absolutely no good reason today — was running to grab the phone, then PLOP! flat on my face on the floor. So I’m kind of sore and miserable, and my glasses are now sitting a little crooked on my face, which is just adding to my general thesis-related misery, so if I’m particularly snarky and scatterbrained here, please do forgive me faithful readers.

First up, I want to go back through the haze of memory to an earlier time, back to when I first really started getting concerned about a housing bubble in Canada. I was an imaginative lad back then, and had a picture of how the unfolding would happen: how it would differ from what was happening in the US at the time, and how it would be similar. The picture in my head was complete with all the lavish details. When I saw the lineups for people to snatch up preconstruction condos for 1 Bloor at ridiculous prices, I figured that would be the mania moment. The image that would get played on the news 3 years hence when the folly was evident. I figured that the downturn would start in the winter of 2008/2009, and while a bottom might not be in by late 2010/2011, things would have come off enough that with hard negotiating you could get a place and at least be back to breakeven vs rents. Of course, I’ve been wrong. I thought I was close in late 2008 when the market seemed to just seize up alongside the stock market crash, but it was not only revived but sent into overdrive by the emergency interest rates. 1 Bloor was cancelled, wiping out the imaginary headlines of speculators trying to back out of their units on completion.

Now it looks like Vancouver may get the prize of being the quintessential bubble example, as the former Olympic Village (Millenium Water) condo project has gone bankrupt after being unable to sell units in a timely manner. Yes, it looks like there is some limit to how much the people of Vancouver (or — tongue planted firmly in cheek — China) will pay for a box in the sky. Once the news that there may be a cap on how high valuations can go, will the speculators continue to fuel the market? I would be inclined to say no, but hey, I’m the guy who thought this correction should already be in the 2nd inning by now.

Oh, speaking of the Chinese, the Globe has an absolutely ridiculous article on Chinese buyers driving the Toronto real estate market, claiming that they are responsible for up to 40% of all new condos purchased. I’ve written before about how the “immigration will make real estate go up” meme is junk, but this article is still chalk full of fuzzy thinking rant bait. Now, that number is probably not too far off, but some of the others are demonstrably false, making it appear as though these buyers are disproportionately driving the market. For example, in the first paragraph, the article says that there are 100k “local Chinese”. Now that’s not a rigorously defined term, but it’s too low by at about a factor of 5. I don’t have good demographic information on sub-regions of Toronto, but my understanding is that the people are not uniformly distributed: people of Chinese descent are concentrated in Richmond Hill, North York (esp. along Yonge, Finch, and Sheppard), and downtown (esp near Spadina). The article doesn’t touch at all on the facts that a large amount of the new condo construction has been in Richmond Hill, in North York along Yonge and Sheppard, and downtown near the Gardiner (with the biggest clusterfuck concentration near the base of Spadina). I.E.: neighbourhoods that are already largely Chinese (perhaps upwards of 40%!). In which case the figure is perhaps not so outrageous.

“Just two years ago when prices for new suites reached the stage where they made little economic sense as a rental unit, investors fled the market. […] This fall, however, builders managed to cut selling prices at newly launched projects simply by reducing the size of suites. The cost per square foot remained the same, but the price per suite was down by about 10 per cent. Once again investors could plunk 20 per cent down and see enough in rent to cover mortgage and maintenance payments with a reasonable return.”

Err… that seems to be making the assumption that the rent for a unit that’s 10% smaller will fetch the same rent as a larger one… Anyhow, it doesn’t matter who’s doing the speculating, or why (“They often avoid resales because they want to make sure nobody died in the home,” – really??): if there’ s a lot of speculation in the market, that will eventually end badly. You can’t keep building units no one will live in forever.

Anyway, to finish off this mini-rant, I’ll point you over to a post by Barry Ritholtz. The “Chinese buyer” meme is not unique to Toronto or Vancouver. Heck, neither of these supposed hot Chinese meccas even made it to the summary infographic.

Next up, over at CMF poster dogcom started a downright silly thread, trying to argue that renting was throwing your money away, and that “Of all the people I know I don’t know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.”

I composed a response that, in my admittedly sleep-deprived and pain-filled state, I thought was borderline brilliant, and will repost it here:

I’m a huge housing bear as you may well know, but even then I would say that most of the time owning your shelter is the better way to go. After all, under normal conditions landlords make money.

But, my contention is that for the last few years these have not been normal conditions, and that first time buyers would be better off continuing to rent, and putting their money to work for them in the stock market. In a few years, things should return to normal for housing, and it will once again make sense to own. Someone who bought their first house at the peak of the last market top (1989) may be worse off than someone who got into RE a few years before, or a few years after. I don’t think anyone just buying a house to live in found themselves destitute as a result of overpaying, but they could have had a noticeably easier go of things. Consider it: if you’re a typical family that’s only saving ~10% of your take home pay each year, then there’ s a big difference between your housing costs being 25% of your pay or 30% of your pay.

The Globe has a little article on what to do to put your money where your mouth is if you think there’s a real estate correction coming. Unfortunately, the advice isn’t very good:

– Selling your home is really the only option to ‘short’ the housing market. Even downsizing is not a good option unless you want a smaller place anyway: all the transaction costs and hassle of moving, plus the inconvenience of living in a smaller place… and you only modestly reduce your real estate exposure. The best solution is to sell your current house to an unwary investor and rent it back — eliminate your exposure and you don’t even have to move! Note that the real estate guy’s comments about the cost of rent making the attempt of selling your house at the top and renting until you’re comfortable with buying back in a bad idea are a red herring: if real estate is over-valued, one of the best indicators is that it will be cheaper to rent than the carrying costs of the same house. It’s really just transaction costs, inconvenience, and the uncertainty of being wrong that should stop you from taking that action if you currently own.

– Shorting the banks is not a great idea because the yield is a stiff headwind, and mortgage lending is explicitly guaranteed by the government via CMHC, so you don’t have the opportunity for a bank to blow up and go to zero like in the states. Even in a bad housing downturn, the banks will probably just suffer reduced earnings as new mortgage originations slow. Not a great case for shorting. There are no CDSs to short (or to take out a default swap against), again, because the mortgage securitizations are largely explicitly government guaranteed.

– Similarly, shorting say Rona wouldn’t be a very good idea as it’s already underperformed since the 2009 lows: the expectation of slowing renovation expenditures may already be baked in.

– The thinking on going long the apartment REITs is also flawed: rents may very well go down in a housing crash, as speculators who currently eat carrying costs in the hopes of a quick flip and sky-high appreciation may look to start renting out their empty units. Plus it’s not like rents are low relative to incomes or other measures at the moment. Plus, the apartment REITs like Boardwalk are already trading at a premium to diversified REITs.

Really the only way to go short real estate is to participate in the Teranet derivatives market, and to do that you must be an accredited investor.

Oh, and speaking to my first point above – selling your home and renting, there was another article that got under my skin a while ago on the Star’s real estate porn blog. [Sorry, didn’t keep the link] In it, a reader asked about what to do in the situation where they bought a new home in pre-construction, and it won’t be ready for another 2 years. Should they sell their current house now and rent, or just hold on? The responder starts with some preamble about not trying to time the market, and then concluding that the reader should stay in their house because of the fees involved. Unfortunately, in that case not timing the market means selling as soon as you agree to buy the pre-construction house. Otherwise you’re effectively carrying two houses for a time, and you’re exposed to the risk of a downturn over the next 2+ years — if there is a crash, you could be in a bad spot, especially if you’re counting on extracting a certain amount of equity from the sale of the first house to close the deal on the new one. Yes, it may be more expensive on average to sell so soon and have to move twice, to have to discharge your mortgage then get a new one, rather than porting… but think of it like insurance. Most of the time, it costs you a small, manageable amount. In exchange, you avoid the risk of a large rare event that could make your life suck.

I have talked in general before about the “you can’t time the market” statement. About how it comes from the world of equity investing, and may not strictly apply to the real estate market — where, I believe, measuring overvaluation is more straightforward, allowing you to say when you may be close to a peak or trough, though the when part of timing is still difficult (as you can perhaps see based on my old predictions not coming to fruition yet; ah well, if you can’t predict well predict often).

And I will end on this: remember that pretty, but overpriced house that I linked to in my last post that was up for rent or for sale? Well, the ads have been revised, and the asking rent lowered to $2400, while the asking sale price reduced to $650k. It’s now an even better option to rent rather than buy this house, as the rent multiple is a rich 270X now, or if you prefer percent, a gross yield of 4.4%.

I don’t watch the Agenda on TVO as often as I should. Last week was an episode on the case against home ownership. It’s a nice program, the host basically just asks a few questions from time to time and lets the guests hash it out.

Some points:

Home ownership rates in Canada, from starting at a lower level than the US before the recent boom, are now higher than even the peak in the US. The guests don’t make too much hay over this, except to point out that it’s been driven in large part by younger people (especially young women) buying homes sooner, while they’re still single (perhaps with the intention of remaining single). I of course have to ask how long this increased demand can last for before falling back to historic (or lower) levels? We can’t start selling homes to high school kids…

The Royal LePage guy then pulls out the results of a survey that suggest that people who got into home ownership earlier in their lives did better financially later in their lives. That might support the increased levels of home ownership and the notion of buying younger, but I’d say instead that it’s confusing correlation and causation, or at least ignoring the changing landscape. Those who bought younger may simply have been the ones who were more financially savvy, and not that the early purchase of a home caused them to be on better financial footing for the rest of their lives. Also, for most periods of the past few decades, owning your shelter has been the better option, financially… it’s only when real estate prices rise to ridiculous levels that renting becomes cheaper, so those results may not apply to someone buying today.

“When a venture capitalist invests, they have one criteria in mind: exit. If you’re in a career which requires you to be mobile… if you think you may have to move around… Americans are facing the fact that they have to move around, Canadians less so, but Americans have to move around for their jobs. My dad had one job in a factory for his entire life; Americans are now switching jobs quite a bit. So I think about exit. I wouldn’t even worry that much about ‘am I gonna take a little hit’… that’s bad, but it’s not terrible. What terrifies me is these people who can not sell their homes, who cannot exit. So I think renting — there’s a financial comparison — but if you’re in a labour market where you may need to move, that question of exit I believe becomes paramount.”

He says in another point of the program that job mobility hasn’t been as big of an issue in Canada as in the US — often people will switch jobs or switch careers here, but stay within the GTA for example, so being able to sell their home to change jobs has not been as critical, so far. But I also worry about those small condos I was talking about last week. What’s going to happen to those people that bought condos barely large enough for one person when these people want to get married and have kids? If they’re underwater on their condo, will they have to put off having a family? Will their fears of being “priced out” and rushing to “get on the property ladder” backfire completely? Needing to move is not always career-driven.

One of the panel members is a renter in Toronto, but they didn’t go into the details of how she came to the figure that it cost her $2000 to rent or nearly double to own her condo, or how this is a recent phenomenon (that IMHO, may not last) which is of course one of my favourite bugbears.

Speaking of which, here’s an excellent comparison for you all: a house for rent near the Danforth and Pape in Toronto. They did a fantastic job on the website advertising it, namely being full of pictures not just of the house as it is, but also of the renovations to bring it to its current state. We would not be worried about water coming in the basement of this place.

Here’s the Craigslist ad, from which you can find their dedicated site.

This house is up for sale or for rent, here’s the homefinder and MLS listing for the sale side.

To continue to beat that dead horse of mine, at $2700/mo, it’s a much better deal to rent than buy this house for $680k. That’s a rent multiple of 252X, or if you prefer to think in percentages, the annual rent is only 4.8% of the purchase price — an amount easily eaten up by mortgage interest/opportunity cost, insurance, and property taxes, let alone closing costs or a margin of safety.