Kitchener-Waterloo

Renting instead of buying a house not a sign of failure, says advisor

Renting and investing in the stock market may be the wisest choice for young Ontarians, as home prices reach record levels in many cities across the province.
Susan Daley, associate portfolio manager at PWL Capital in Waterloo, says millenials have the opportunity to make as much, or more, money in the stocks and bonds market than in the real estate market - if they invest broadly in the S&P/TSX composite. (Joe Pavia/CBC)

Home prices crossed a psychological threshold of sorts last month in Waterloo region, as the average cost surpassed the half-million mark in April. 

Now, single detached homes are selling for $594,453 on average, putting home ownership further out of reach for many.

Though home ownership has been a rite of passage for most Canadians, there's no shame for millennials if they decide not to buy into the real estate market, financial planner Susan Daley told CBC News. 

"Don't think of yourself as a failure, if you're not a homeowner. Actually not being able to own a home might be a blessing in disguise," said Daley, who is an associate portfolio manager at PWL Capital in Waterloo.

"You typically look at a mortgage and renting and say 'Well it's just throwing money away,' but a lot of people don't look at the benefits of renting, including the added flexibilty and, typically, the reduced costs," said Daley, who is also a millennial and currently renting her place.

When people calculate the difference between renting and buying, Daley said, they usually neglect to factor in maintenance, renovations, property taxes and insurance for the mortgage, property and the home itself. 

"It could actually be much better to rent, paying a lower cost and letting your landlord pay for those additional costs, and saving the extra money – that you're saving on an ongoing basis – in stocks and bonds, for your future."

S&P/TSX outperforms average home prices

According to Alex Avery, the author of The Wealthy Renter, investments in the S&P/TSX Composite have outperformed average home prices in Canada since 1991. 

"That $100 invested into housing at the end of 1990 turns out to have grown only $261 after considering all over the associated costs," writes Avery.

"That means that investing in stocks delivered more than two and a half times ans much money to investors than housing did over the past 25 years."

"The thing with stock markets, is you see the fluctuations on an ongoing basis. Every day you can see it going up and down. Home prices – they do the same, but you don't see it. There isn't a ticker next to each home, saying what the value of that home is on a daily basis," said Daley.
This graph, created using data from the Canadian Real Estate Association and Bloomberg, shows that since 1991 the S&P/TSX composite has outperformed the real estate market by about 2.5 per cent. (The Wealthy Renter)

Broad markets investments are best

Entering the stock market may seem daunting, admits Daley. "A lot of us are starting out with very little knowledge, and we're left thinking 'Okay I need to buy the next Apple.'"

But truth is, said Daley, millenials new to to the market don't need to worry about picking individual stocks. 

"You don't have to time the market to be a good investor," said Daley. 

Instead, she said if you believe in the principle that businesses and governments will continue to need to access capital to carry out projects, investing in the broad market is the best choice. 

"The fee for that [access to your money] is the return you earn," she said.

And don't get caught up in the daily changes, said Daley. Instead, be patient. 

"So for younger investors... take a long-term view. Don't look at the stock market on an ongoing basis every single day, because that fluctuation is normal. Look at it over the long term and returns look much more steady and promising"

How much to invest

Daley says the best way to figure out how much to invest is to calculate the difference between what it costs to rent now, and how much it would cost to own the same place in the current market. 

Save that amount, just like if you were saving for a down payment on a home, and invest once you've accumulated a decent amount.

Many small transactions will ultimately cost more than a few larger buys. 

ABOUT THE AUTHOR

Jackie Sharkey is a producer for CBC News in Kitchener-Waterloo and an occasional guest host. She has been been based in Kitchener, Ont., since the station was created in 2013, after working for CBC in Kelowna, B.C., Quebec City and Rankin Inlet, Nunavut.

With files from The Morning Edition

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