Home prices are falling, yet the affordability crisis worsens.
High interest rates have offset the benefit of lower home prices in many cities, but that’s only half the story. After declining early in the pandemic, the cost of renting has come back with a vengeance. More than houses, this country needs a better supply of affordable rental buildings along the lines of the high- and low-rise apartments built decades ago in city downtowns.
A better supply of rental units might help affordability in the years ahead. For now, we have young adults paying so much in rent that they can barely afford to save for a house down payment. In a recent column on the financial damage caused by expensive rents, I suggested a few options for those who are weighed down by rental costs, including roommates, renting in the suburbs instead of downtown and moving back in with your parents.
Let me suggest one more idea. Take your timeline for buying a house and add five extra years to build your career, boost your income and save for a down payment. It might not suit your life plans, but buying a house, townhome or condo in your late 30s can work out fine.
Imagine you buy at 37 with a 25-year mortgage amortization and, between making accelerated biweekly payments and a couple of prepayments along the line, you get the loan paid off in 20 years. At 57, you start power-saving for a retirement in your late 60s or even age 70. That’s not an unreasonable path for young adults who should expect to live well into their 90s.
For a glimpse at the awfulness of the rental market today, check out Ben Mussett’s recent Globe and Mail story – “Bidding wars, cutthroat viewings and onerous applications: Stories of Canada’s red-hot rental market.”
Renting is awful if you’re trying to break into the market today. Unfortunately, the way to get into the housing market in the years ahead just might require you to rent longer than you thought.
Subscribe to Carrick on Money
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob’s personal finance reading list
A house on a single income?
A look at cities across the country where it’s feasible to buy a detached house, townhouse or condo on a single income.
Taking the gee whiz out of GIC rates
A portfolio manager offers a valid critique of the 4 to 5 per cent risk-free returns available from guaranteed investment certificates, including a discussion of inflation and taxation. I still think people who buy 5 per cent GICs today will be quite satisfied with the purchase in the years ahead.
EVs help you save on more than just gas
A comparison of insurance premiums for gasoline and electric powered vehicles shows EVs can cost slightly less per year. Alberta and Ontario are used as examples. What jumps out in these numbers is how much more people in big cities like Toronto and Calgary pay to insure their vehicles. When we moved to Ottawa from Toronto many years ago, I remember being shocked at how much lower our car insurance bill was. What went up? Water bills were much higher in Ottawa.
How to make your house look expensive
A mix of affordable and some pricier options for elevating your home’s appearance. The cheapest option: Have cut flowers around.
Ask Rob
Q: I have been with my advisory firm for six years and my average growth has been 5.4 per cent. I have a balanced portfolio with 66 per cent equity spread between Canadian, U.S. and foreign stocks and 33 per cent bonds. Considering the growth of the TSX and S&P 500, I find my return poor. What kind of returns should I expect from Canada’s professional investment community?
A: You can benchmark your returns by comparing them to an appropriate mix of stock and bond indexes, or to an asset allocation exchange-traded fund with a similar mix. Asset allocation ETFs are fully diversified portfolios you buy as a single fund. The iShares Core Balanced ETF Portfolio (XBAL-T), with 61 per cent of its assets in stocks and 39 per cent in bonds, made an average 5.1 per cent over the past five years. The time frames here don’t match up exactly – you have six-year numbers, while investment firms typically provide returns over periods of one, three, five and 10 years. Still, it seems as if your firm is competitive. Investment companies may publish their returns online, so it is possible to compare. Just remember that great returns over the past five years are no guarantee you’ll outperform in the next five.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A survey of bank accounts suitable for students, which means there are no fees for debits, e-transfers, bill payments and other basic transactions. And here’s a list of the best credit cards for students.
The money-free zone
Blues singer Shemekia Copeland’s new album, Done Come Too Far, has its fun moments, including the tune Fell in Love With a Honky. But the best songs are dead serious, including Pink Turns to Red. It’s about gun violence.
What I’ve been writing about
- Exactly how much pain should we expect for our personal finances in the rest of 2022?
- Don’t snooze on 5-per-cent GICs, because they may not be around for long
- How renting could financially damage a generation of young adults
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF Buyer’s Guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who’s best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where's the happiness? • Who should and shouldn't worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don't make this potentially costly assumption about the CPP Survivor's pension
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
