You’d think the U.S. mortgage crisis would have put to rest the idea that real estate is a safe harbour for money, but no such luck, says Moshe A. Milevsky, associate professor of finance at York University.
In an interview with The Globe and Mail’s Rob Carrick, Milevsky punctures two commonly held wisdoms about home ownership. A) That a house is an investment, and B) that renting is tantamount to throwing your money away.
“One of the major milestones in people’s life is the purchase of a house,” says Milevsky. “But it may not be appropriate for everyone… it may appreciate, it may not, but you don’t buy it for that reason.”
Not only could a downturn in the housing market put your “investment” at risk, but as Milevsky has said elsewhere, you can only really determine whether a house has been a positive or negative investment after totalling property taxes, repairs, landscaping, maintenance, and sundry other costs. (His own home, he admits, has cost him more money than it’s gained in sticker price.)
Renting gets a bad rap, he concludes, and for many young people. and even not-so young people, may be the more financially sound option. Determining when you’re ready to buy a house, Milevsky believes, is not just about biological age. “It’s a stage of your personal balance sheet. How stable is your job and family life?”
In the end, when buying a home, “a portion is investment, the vast majority is consumption.”