The Wealth of Common Sense finance site effectively summarized the cases for and against buying a home in a January 24th post. The information focuses on U.S. investors but might be even more important for Canadians - the domestic real estate market is again surging higher from already-lofty levels in major centers.
Surprisingly, the author Ben Carlson doesn’t mention the most often cited reason for buying a home – you’re paying your own mortgage, not someone else’s – but the remainder of the pro-homebuying arguments are familiar. Stability, financial planning, the ‘psychic value’ of owning your own place and the potential for price appreciation are all mentioned.
The extended rally in domestic home prices has conditioned Canadians to believe that residential real estate is a foolproof path to wealth, so Mr. Carlson’s anti-homebuying argument is likely to have more impact.
Canadians who would never consider borrowing money to buy stocks rarely have issues borrowing five to 10 times of their household income to purchase a home. The word ‘leverage’ is not often used to describe mortgages but that’s what they are. As Mr. Carlson writes, buying a home is “a leveraged investment that can work for or against you in big ways.”
It’s also the case that just because buying a home has been remarkably successful as an investment over the past decade, it doesn’t mean this bullish trend will continue. Mr. Carlson doesn’t think a home should be viewed as an investment at all, “A house is not an investment but a form of consumption.”
The future path of Canadian home prices is dependent on so many different factors – interest rates, economic growth, the continued tolerance of near-record household debt levels, demographics, immigration and commodity prices just to name a few – that I’m not about to pick sides. I do think it’s a good idea to go through the case against homebuying to be comfortable with the risks before making the plunge into the real estate market.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Richards Packaging Income Fund This security is in correction territory, down 11 per cent from its record closing high of $50 set on Jan. 13, and is nearing an oversold condition. It provides investors with a stable monthly distribution, currently equating to an annualized yield of 3 per cent. Year-to-date, the payout ratio is 48 per cent, suggesting its distribution is sustainable. Jennifer Dowty profiles the stock.
How to build your RRSP like an investing pro
There are two keys to a successful registered retirement savings plan. The first is steady growth over time. The second is risk management. A big loss can set you back years and greatly reduce the amount of capital that’s available to you in retirement. Take a look at how the pros manage the assets in big pension plans. They combine long-term-growth assets with low-risk fixed-income securities. Gordon Pape explains further, and recommends a number of ETFs and stocks to buy to emulate the pros.
Utility stocks have been soaring so far in 2020. Here’s why it may not last much longer
Canadian utilities have sailed through fears about the spread of the coronavirus and the threat of declining global economic activity. But the stocks are now approaching a hurdle that could prove more difficult to clear: High valuations. David Berman reports.
Coronavirus has finally broken the resolve of markets. Here’s why you shouldn’t run from stocks
The stock market, rarely a bastion of calm in a crisis, was unusually resilient in January to the emerging threat of a global pandemic – until Friday. A day after the World Health Organization (WHO) declared the novel coronavirus outbreak a global emergency, the continuing spread of infections around the world overwhelmed the market’s resolve, sending benchmark indexes deep into the red. Periods of heightened volatility are common in the early days of an outbreak, judging by the way other epidemics, such as severe acute respiratory syndrome (SARS), rippled through financial markets. That track record of health emergencies also suggests stock-market losses are typically fleeting – sell-offs that can last as little as three weeks. Tim Shufelt reports.
Rob Carrick grades Canada’s online brokerages for 2020
The best online broker in Canada is also one of the priciest on commissions and fees. No other broker is good in so many different areas and no other broker makes such consistent year-by-year improvements. Read Rob Carrick’s new ranking of Canada’s online brokerages.
Others (for subscribers)
Monday’s Insider Report: CEO invests over $300,000 in this stock yielding 4.3%
Others (for everyone)
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Ask Globe Investor
Question: When you advised a young couple considering a home purchase in the next few years, you didn’t suggest putting as much as allowable into a TFSA. Why not protect any income from taxes while they accumulate savings securely for a home?
Answer: My advice at the time was to put the money into a high-interest savings account. If it can be tax-sheltered in a TFSA, so much the better.
However, the rates you see advertised for high interest accounts are not always available for TFSAs. For example, Laurentian Bank’s digital site is promoting 3.3 per cent on their high interest account on balances up to $500,000. But when I called to ask if this applied to TFSAs, I was told no, TFSAs are not available. EQ Bank, which is paying 2.45 per cent on their high interest account also does not offer TFSAs.
Motive Financial does offer TFSAs but the rate is 2.4 per cent, which is forty basis points lower than the 2.8 per cent they’re paying on their Savvy Savings Account.
What it all boils down to is that the best-paying high interest accounts don’t offer TFSAs or discount the rate they pay if you go that route.
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What’s up in the days ahead
Torn between investing in the high-flying Tesla and the stable dividend payouts of General Motors? Ian McGugan will have an analysis on where to place your bets.
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Compiled by Globe Investor Staff