Crisis, What Crisis? Homeless in Toronto.

We listed our mid-town house just as Kathleen Wynne, Bill Morneau and John Tory waded-in to target house prices that fit their eye as “fair”. Despite the overhang of uncertainty caused by Ontario’s Fair Housing Plan we sold at a price that compared well to recent sales in our neighbourhood. Contrary to the narrative of a market that was dysfunctional, that cried out for intervention, a happy seller and buyer each drove away from the transaction feeling good about what had happened.

So, after 26 years in the heart of Toronto, you must think we made a killing of a return. I certainly thought we’d done well. But unfortunately, the math tells a different story. We bought in 1991 after the market in Toronto had dipped, but then it dipped further! Over the years we landscaped with stone out front, renovated the third floor, the kitchen, two bathrooms and the basement. If I capitalize those expenditures and calculate my return, we earned just more than 4% per annum. Better than inflation and nice on an after-tax basis, but hardly the stuff of bragging at cocktail parties.

And now, we are renters. Homeless. Landless. Unable to build equity tax-free. But there’s some comfort in the math here worth noting. Owning a house is an expensive proposition. There is the cost of the capital tied up, as well as taxes, insurance, and maintenance expenditures. Every now and then, the roof needs doing, the deck needs re-planking or a new coat of paint is called for. But for the societal pressures of home ownership, based on the numbers, we feel great about what we’ve embarked on. And I’m lucky to know an investment manager who I trust to grow my capital while I’m ‘out of the market’. At this juncture, renting allows us to experiment with such mundane issues as how much space we need and whether we need a backyard or not. That’s what’s driving this decision.

And despite what we have done, I actually have no opinion on where the Toronto housing market is headed. Just as with stock markets, I think it’s foolish to try and time markets. On one hand, there is an imbalance of supply and demand of single family homes in Toronto that argues for higher prices. But there is also the risk that much of the price appreciation has been driven by cheap interest rates. Eventually, rates will creep higher.

As I write this note, we have just found our new rental. It’s not perfect. It’s better! Closer to the office, closer to Yonge Street and a walk to the subway. We’ll own a house in Toronto again one day, but for now our plan is coming together and the tumult and hysteria of the Toronto market can go on without us.