Buy or Not to Buy

If Shakespeare's Hamlet were a 20-something living in Toronto today, chances are he'd be working on his first career. He'd have some inheritance in the bank, he might even be living in his mother's basement.

He'd have little job security, no pension and would probably be soliloquizing about the same dilemma as everyone else his age:

To buy or not to buy, that is the question; Whether 'tis nobler on the pocketbook to suffer the outrageous rent, or to take up a sea of mortgage payments, and by doing so, retire with equity.

With interest rates at the lowest they've been in more than 50 years and with home and condo prices in decline for the first time since 1996, many potential first-time buyers are viewing this as their best chance to buy into an otherwise unaffordable market.

That's partly what led Ren Ramkhelawan to buy his first highrise condo near Bathurst St. and Lake Shore Blvd.

Ramkhelawan, a 27-year-old systems architect with a local charity, reckons he spent $18,000 in rent on his one-bedroom apartment at Spadina and Bloor Sts. After feeling he was "flushing rent down the toilet," Ramkhelawan started looking for a condo in October 2007 but was soon priced out of the market.

"I'd make an offer and then the seller would get more offers, and before long it was just beyond my price range," he remembers.

At one point in his search, he'd actually negotiated the purchase of a 500-square-foot condo for $222,000. But he backed out because he felt it was too small and he'd be better off in his larger apartment.

A year later, the economy had tanked, taking the condo market with it. He's now the proud new owner of a 700-square-foot, $227,000 condo.

Though he's paying $200 more per month on the combination of condo fees, mortgage payments and property taxes than he was at his old $980-a-month apartment, he feels he's getting a better deal.

"In the end, I wanted my own place. I wanted to know that I was investing in something instead of just handing my rent money away."

But Ramkhelawan, like many other first-time owners, doesn't see himself living in the condo for more than three years, when he plans to flip it and make a profit.

Problem is, many in the realty business argue Ramkhelawan and others are banking on returns from a world that no longer exists.

"Everyone wants to flip houses and condos like pancakes," says Greg Stanley, a mortgage broker.

"Maybe we should have a change of view, thinking that a house is actually a home like they did in the old days. Back then, if you bought a house and sold it, it would be the same price. No one expected the houses to go up in value; they only expected to pay them off."

The Organization for Economic Co-operation and Development recently released data that show house prices have fallen in Canada, but prefaced it with the view that such prices "will have to fall still more ... if affordability, measured by the ratio of house prices to income, is to return to its long-term average."

If that's the case, then first-time buyers who choose to jump into the market now could see themselves carrying a hefty mortgage on a depreciating house. Anyone who bought a home when the market peaked in 1989 watched their "investment" plunge when the housing market tanked months later. Those homeowners still haven't recovered the pre-bust value of their homes two decades later, if you factor in inflation.

"There's so many myths around real estate," says James McKellar, a professor of real property development at York University.

"Let's not forget that before the 1980s, the motto was that a home was a money pit. Over a long period of time, housing does not keep pace with inflation. Don't look at it as an investment. A house is a cost. You don't buy a car as a good investment – you buy because you need it."

"The conditions (for buying) are favourable in terms of interest rates and affordability, but that's just one concern.Remove Formatting from selection

"The decision to buy depends on your personal circumstances – that includes your personal needs and how secure you are in your job situation. Ask yourself: is your ability (to pay down a mortgage) going to be the same in a few years time?"

The results may surprise you as, in some cases, those who rent and invest the money they would have otherwise thrown into their mortgage come out on top in the long-term.
That said, a home is an asset and having to pay off a mortgage forces you to throw your savings into something instead of wasting your money.