Stock Market Slides and Real Estate Looks Better
Recently, a lot of people have been panicked about the horrific declines in the stock market and the apparent downturn in Vancouver's real estate market. Many are wondering what to do. It seems that with respect to the stock market, most analysts are saying to hold tight, as over the long term everything will be fine.
This seems like it might be a logical position, given that once the crash has happened, its kind of late to be taking action, I would think, unless you think that there is still a long way down to go. From what I have been reading and hearing, the stock market the fall has already been so extreme, so the worst may be close to over, which supports the argument that it may be time to hold and not sell.
In the Vancouver real estate market, in the grand scheme of things, the prices are still doing pretty good despite the fact that we have moved from a market which was very favourable for sellers into one that now works more in the buyers' favour.
With real estate, my approach is not to worry about selling at the absolute peak or buying at the absolute bottom as it is next to impossible to know when those two states will occur. And I generally believe that greed kills. However, when I have been thinking about disposing of a particular property, AND the market starts heading downward, I would rather sell once it has gone down a bit, like now. This is why I just sold one property and am selling another of my investment properties.
Prices are still high and I can buy in again later when prices have gone down more. The fact that I may have made 10% more had I sold a few months ago does not deter me from capitalizing on what is still a market where I will make a good profit on my past real estate purchases.
I will keep my principal residence because, while it may always end up being my best investment due to favourable tax treatment, that is not its primary purpose. So unless I find something to upgrade to, there is no real point in selling. I have to live somewhere and to me renting and paying someone else's mortgage just makes no sense, especially when rents are as high as they are in Vancouver.
Where do you put money when the stock market and the real estate market are both hurting? Real Estate.
The last time I made a positive comment on investing in real estate, a reader sent in an email challenging the reliability of what I had said because I am a realtor. For this reason, he assumed I must be biased and espousing an opinion designed to make me money as opposed to provide real advice.
Well, that is not accurate. I really think, and there is a lot of information out there to support this, that real estate is the most solid investment available. Having a principal residence is just a no-brainer. Except in very unusual circumstances, if a financial advisor is not telling you to buy a principal residence before investing in the market, other than maybe maxing out RRSPs, then I think you should consider another financial advisor.
And if your financial advisor is showing you stats on the stock market and the real estate market, make sure you are getting the numbers relating to the Vancouver real estate market-not the Canada wide numbers as the real estate market in other parts of the country is not the same as it is here and the Canada average numbers can be very deceiving. Not helpful when making decisions as to where to invest.
Everyone needs a place to live and if possible, I think it makes good sense to own it and pay yourself each month, building up equity as you go.
With respect to putting your money in the stock market vs in investment properties, I think the latter is still a safer bet if you buy the right investment properties. As one of my young, but very savvy investor clients and I were discussing the other day, there are a lot of good deals to be had out there.
The market is very favourable for buying as we still have very low interest rates, there is a ton of inventory to choose from, and prices are better than they have been for ages. It is now much more possible to buy a good investment property and maybe end up with the rents covering your payments. In Vancouver, it doesn't get much better than that.
It is really a mystery to me why so many people were dying to jump into the real estate market last year when the market was much less favorable to buyers but now those same people are cautious about buying into a buyers' market. Does that make any sense?
Bottom line: At the moment, and in general, I would definitely be buying real estate not stocks. But having said that, just as there are currently some great deals in real estate, maybe right after a crash is also the best time to buy stocks.
But don't ask me. I stick to buying dirt.
www.vancouverviews.ca [Patricia Houlihan, LLB BA,] is an environmental lawyer and a realtor with Macdonald Realty Ltd. Her website is: www.vancouverviews.ca