Brace yourself -- home buying season is kicking off.
Get ready for the real estate lawn signs, the open houses, and the gossip over how much your neighbour's house sold for.
There's a prevailing sense of home-buying mania in Canada, especially in Canada's real-estate crown-jewels of Vancouver and Toronto. But you don't need to live in a booming market to feel the swell of enthusiasm for home ownership. Conventional knowledge is clear -- stop feeding your landlord, and start building your own equity.
That logic is not entirely false, and rising home prices add to the urgency. The sooner you hop on board, the higher you'll soar. But what good is conventional wisdom, if you can't afford to follow it? Is any advice worth following if it puts you at risk?
I worry about the renters out there who are champing at the bit to hurry together some semblance of a down payment and dive into the housing market. I understand their eagerness, but I am concerned that they are so focused on the goal that they are foregoing common sense and concerns about their day-to-day financial well-being.
Renting isn't so bad, and until you're absolutely, positively ready to afford a house (and the seemingly endless costs that come with it), you should probably focus on the brighter side of tenancy.
Consider the following, in defence of renting:
Location, location, location - If you are at the point where you are uncertain as to whether or not you can afford a home, chances are you won't really be able to afford a home in a desired location. Sought-after neighbourhoods with the best amenities are probably out of your reach, unless you're renting. Renting allows you much more freedom to pick and choose your location, and that will have a positive impact on your quality of life.
Square footage - Some prospective buyers on the lower end of the affordability scale might see a condo as a gateway into home ownership. This isn't a great option if you have a family or pets because condos are shrinking. Dollar-per-square-foot value gets much better when you are a renter.
Freedom from "the extras" - Renters generally don't have to worry about condo fees, and some units even include utilities in the rent. Tenants can free their minds from property taxes, maintenance, repairs, and renovations. A 2013 RBC survey said the top mistake Canadian homebuyers make is underestimating "significant renovations needed to the property." Mortgage payments are just the beginning!
An ability to save - Just because you can't buy today, doesn't mean you won't be able to do it in the future. Renting a reasonably-priced unit will free up your income so that you can spend time socking away as much as possible. Keep your eye on the "20 per cent down payment" prize. Any less and you will be forced into mortgage insurance. The CMHC insurance calculator shows that a 5 per cent down payment on a $450,000 home, with a 15-year amortization period, will cost you a premium of $13,466.
You don't have to give up on your home-buying dream, but I recommend you take a breather. Until you're in a financial position where you can make a 20 per cent down payment and you can keep your monthly fixed costs at 50-60 per cent of your after-tax income, I suggest you wait.
Take a step back, sit out the home buying season, and relax. Take a stroll around your great neighbourhood. Maybe take a weekend trip somewhere, because unlike your house-poor friends, you will have the disposable cash.
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