Renting vs Buying in a downmarket

By Mark Jennings-Bates

I typically don't have a lot of time to post on web forums, but they are extremely valuable tools and recently I had the opportunity to view some posts on Castanets Forum in regards to the suggested impending implosion of Kelowna's housing prices. The particular forum I studied is probably one of Castanet's largest ever threads, which shows you the attention this topic is getting and deserves from a debating point of view.

Reading it made me realize that there are a few topics that could be fleshed out a little more, one of which was the debate over whether to rent or purchase a home in this market. This topic was a hot topic of discussion in Canmore also as it evolved into a world-class tourist destination.

There is a strong "coupon clipping" mentality represented in some aspects of the thread which I think can create one of the most misleading beliefs of all, despite the fact that some of the information in the thread has tremendous merit. Firstly, it is important to understand that a wise man has many counsel and whilst the internet can be a source of information, it is also referred to as the "bathroom wall of the universe" because of the amount of anonymously posted information which is nearly always the case in forums. The old adage that advice is worth what you pay for it certainly holds water.

What I mean by coupon clipping is in reference to the posts suggesting that people have "saved money" by renting versus purchasing. It is a hotly debated issue that has arisen in previous threads also. The challenge I have is that unless savings are isolated and placed in an investment, bank or holding area, they are not savings. To think otherwise is foolish, yet the uninitiated real estate purchaser can take this information as gospel and change a decision that may have ramifications for many years to come.

Can a person physically save money by renting vs buying. There is no doubt that with strong determination and self control, a person or family is able to isolate savings, store them and grow them. Does this happen? The truth is no.

All of the socio-economic studies I have seen point to the fact that a person renting (or clipping coupons for groceries) does not leap forward economically because of the money they save, precisely because they never save it. The discussion has more to do with a person's mental constitution and make up than it does dollar values. Hence, asset purchasers often pay more over time for their asset than a renter would, but end up with equity because of asset appreciation, again something that in the thread is hotly contested, yet is not a theory, it is a fact. Asset purchasers are ahead economically at the end of the day, in every study I have seen. This would mean the choice is down to one of lifestyle and convenience and not economics.

I recall twenty years ago having a discussion with a cousin who was educated as an economist at Lyons University in France. I asked him if I should buy futures of the Canadian dollar before we emigrated so that I could benefit from swings in the exchange rate. The advice I received (very wisely) was stay away. Exchange the money the day you leave and don't worry about what it was the day before or after. Now, there are companies like Ford Motor Company who invest billions of dollars in the foreign exchange market nightly and probably with much success, however, they probably hired a team of highly qualified staff to run the due diligence prior to any decisions.

My point is that, like foreign exchange investments, the renting vs. owning debate is not black and white. Renting is not good because you save money, in fact it is a fallacy. That does not mean that renting is bad. Renting is a lifestyle decision, driven by personal desires to live in a particular location with particular finishing levels at a particular price, it is neither good nor bad but for you it is either the right or wrong decision.

Mark Jennings-Bates is a British Columbia Based Realtor with Coldwell Banker Horizon Realty, the country's #1 Coldwell Banker office. His website, http://www.BCResortHomes.com offers subscribers the ability to access unique and high level investment insights into trends in British Columbia's interior with a focus on resort and lifestyle investments.

Mark Jennings-Bates is a British Columbia Based Realtor with Coldwell Banker Horizon Realty, the country's #1 Coldwell Banker office. His website, http://www.BCResortHomes.com offers subscribers the ability to access unique and high level investment insights into trends in British Columbia's interior with a focus on resort and lifestyle investments.

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