Renting vs. Buying a Home: The Case for Owning

I've made a lot of content over the years about renting versus owning a home, showing that renters in Canada can generate at least as much wealth as home owners by renting and investing in the stock market. But I've gotten a bit of a reputation as someone who's antihome ownership or pro- renting, and that's

never been the case. I'm pro- making good decisions for your specific situation and goals, which may include renting or owning a home. I've owned my home for six years now, and while I don't always love it, I think it has been a good decision for me and my family, even if I know I would be richer

if I had continued renting. There are distinct advantages to owning in certain situations that may well apply to you, too. I'm Ben Felix, chief investment officer at PWL Capital, and in this video, I'm going to make the case for owning a home in Canada.

It won't surprise anyone that owning a home can be financially beneficial. This is often viewed as common sense or just obvious. But the most commonly cited reasons for home ownership being a good financial decision are wrong. Housing is frequently described as an objectively superior wealthb buildinging tool

because of its relatively low risk and high returns, while renting is simply viewed as throwing money away. This is not right. Individual home prices tend to be at least as volatile as the stock market. That might sound shocking if you're looking at the volatility of a real estate index versus the stock

market index. But unlike stocks, you don't get to own the index. You own a single home and its price tends to be closer in volatility to a stock market index. The long-term price returns of owned homes have historically been just a little bit above inflation, around 1% above inflation around the world going

back hundreds of years, including in Canada and the United States. However, there are lots of good reasons to own a home. One of my favorite papers on this suggests that owned homes behave like long-term bonds indexed to the cost of living in that specific home. If rents in your neighborhood are rising, the

value of your home will tend to rise with them. This is called a hedge. you're better insulated from whatever the local rental market does over time by owning. The longer you intend to stay, the more valuable that protection becomes. The caveat is that the same relationship makes home prices volatile

in the short run. If housing costs fall, prices tend to follow, something Canadians have been reminded of recently. But if you're a long-term owner, short-term volatility is largely irrelevant. The hedge is what matters, and it only strengthens with time. If you need to be able to relocate for

potential job opportunities or other responsibilities on short notice, you don't really get to capture the full benefit from the hedging property of an owned home. You might get lucky or unlucky over a shorter period of time, but if you're not going to stay in a home for a long time, its price

volatility can be a big downside. Not to mention the high transaction costs of buying and selling homes. On the other hand, if you're going to stay there for a very long time, the hedging property is extremely valuable and increasingly so at longer horizons. Rent is sort of the opposite. In the short run, it's

very safe. Rental contracts typically set your rent for a year. So, if you only need to rent for one year, you know exactly how much you're going to pay.