Human beings often desire what is beyond their reach. I can humbly testify to this phenomenon, having suffered a muscle injury last year, I have never dreamed so much of being able to practice certain sports again! The forbidden breeds attraction.
Access to property since 2020 is no exception to this natural trend. Since the supply of real estate has become more and more limited, it seems that people have never aspired and thought more about how to become a homeowner. In the midst of a pandemic, bidding wars have clearly demonstrated that buying a home is, in many cases, the result of a much more emotional transaction than a thoughtful investment.
Where are we a few years later? Struggling with high borrowing rates, household debt and declining savings.
Obviously, the freedom and savings traditionally associated with tenant status are also undergoing profound transformation. The lack of housing affordability is increasingly glaring, a consequence of the scarcity of housing. Recently, a column allowed us to decide that one of our readers did not have to rush the purchase of her first home to achieve her goals.
Like so many others, his case clearly illustrates that it is more important than ever to think further and not stop at the myths surrounding the choice of becoming an owner or remaining a tenant. Stéphane Desjardins, the author of Rent or buy (Les Éditions du Journal, 2024), details in his new work all the advantages and disadvantages linked to the two options.
Reminder of some essential angles of reflection to consider when preparing a real estate project.
Evaluate your financial capabilities. Often neglected, even if it is known to everyone, the budgetary evaluation step is required for 99% of the population, even for households with a high annual income. It’s not just about getting bank pre-approval for financing. Borrowing, development and maintenance costs are often underestimated, whether it is the first house or not.
Without budgetary revision, the greatest risk is to sneakily cut savings for the most advantaged or to go into debt for those whose financial capacity is more limited. Listing your real housing needs as well as your personal and family priorities and values offers an additional key to a financially healthy and sensible purchase. If your needs exceed your means, the rental option should be considered while you review your project.
The myth of real estate profitability. Those who say that a house always increases in value are not always precise in their calculations. First, have they included the time spent on maintenance and work? Have they added all the expenses inherent to their purchase over the years (e.g. redoing the decoration is often a pure expense, or adding a swimming pool or a large exterior design), including those accused by the gang, such as increase in transport costs? Did they do their calculations in current or constant dollars? Let’s say that all this enormously reduces the final profitability if we compare it with a passive investment on the stock markets.
I agree that buying a house is forced savings. But betting everything on this highly immobilized investment is not justified in an overall financial plan. Shopping for your home, since it contributes more to comfort than to enrichment, is imperative, even if the scarcity on the market can make you unconsciously feel that you have no other choice. Even in commercial real estate, in a high interest rate environment, you need to perform a short-term profitability analysis to fully understand the liquidity management challenges that may lie ahead.
Freedom or responsibilities. The dream of home ownership can be experienced as a nightmare for many. Between renting or buying, there is no universal answer. In the comparison, the financial dimension is of course preponderant, but what about all the more subjective elements of reflection that are added? Let’s think, for example, of the skills and interest in renovation work or the free time sacrificed to maintain the house. Even if your decision is made in favor of an acquisition, this type of reflection could modify your project. For example, by urging you not to acquire a house that is too big for your needs or too far from your job, thus sacrificing your quality of life. And what about housing cooperative options, which could gain popularity if they were better known to those for whom the values of sharing and community are important.
Since purchasing a property is emotional, you can protect yourself or your children by focusing on increasing your financial literacy or theirs. In this sense, for many, reading a practical guide like that of Mr. Desjardins would be worth considering well before asking yourself the question between CELIAPP (tax-free savings account for the purchase of a first property ) and RRSP (a registered retirement savings plan) for the down payment.