Is buying a home outright in the future a bad use of money?

[panthalassa]

A bit of background:

I'm 28 and single and am actively planning on not having kids.  I have 30k in savings/RRSP/TFSA and owe my RRSP 15k which I had taken out for school.  I only have to pay back 1/10 of it every year and there is no interest. I make between $3500-$5500 (I only have a 0.6 FTE at the moment; working on getting a 1.0 full-time position but during the busy months like the last couple, I make overtime) net per month with full health benefits.  My expenses are $2000 per month.

I have become extremely debt adverse since I started reading MMM a couple years ago.  I paid off 38K of debt in 2.5 years and I never want to pay interest on anything again.  From now on (since paying off the last of my interest debt last month) I will always save the money before I buy anything. 

I want to retire early, ideally by the time I'm 45, at which time I may pick up shifts here and there because I love my job and it really adds to my self-worth and my desire to help people (<4/month, full time is 14) so technically not retired but good enough.

I'm not house horny like a lot of young people as I know it's not a good investment but a lifestyle change and in my situation, very much a want.

So as for my question, if I were to save $250,000 in low cost TD e-series index funds (price for an average 2 bedroom townhouse in my desired city although I'm hoping the Canadian real estate market crashes and that price will be at least 25k cheaper) over the next 10-15 years and buy a home outright, would that be a foolish idea? 

I would probably not be able to retire at 45.  But my expenses would significantly decrease to less than $1000 a month and I would only need to have saved 300k to retire (although technically I wouldn't be completely retired as stated above).

Please poke holes in my shaky vision of what could be. 

I'm not leaning heavily towards buying a home; I'm sure I would be fine with renting for the rest of my life.

[jrhampt]

No, I don't think it's a bad idea.  This is essentially the same reasoning we are using to justify paying off our house early - permanently lowered expenses.  I wish we had saved more beforehand...I think buying outright causes you to consider the total money you are paying a lot more carefully than if you are primarily thinking about a monthly payments schedule.  And who knows - by the time you save up that much, your wants may have changed, but you won't already be locked into something you don't want and still paying it off.

[arebelspy]

It all depends on whether it makes more sense to buy or rent in your area.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

If, for example, it would cost you $1000 to rent, but only $700 for PITI on a 15-year mortgage, it's probably much smarter to buy right away, with a mortgage.  You'd have the house paid off in 15 years anyways (as opposed to saving up for 15 years and paying cash), lock it in at a (very likely) lower price now, and have more cash in your pocket (the extra $300/mo for paying 700 PITI instead of 1000 rent, though it won't always be that much because now you pay repairs instead of a landlord).  If, in fact, you paid that extra 300/mo towards the mortgage, you'd pay it off in only 8 years and 8 months.  That means you'd own the house free and clear in 8+ years, instead of 15 years.

A house that cost the same, mind you.  Meaning you get 7 extra years to save all that money after.  (Year 15 in paying cash scenario you have the paid off house and that's it. Year 15 in the mortgage scenario you have the paid off house and all the money you saved on rent/no mortgage for the last 7 years, or approximately an extra $46,000)

On the other hand, if it makes more sense to rent, it will cost you a lot more.

It all comes down to if it makes more sense to buy or rent, but if it makes more sense to buy, it almost always makes more sense to buy sooner, rather than later, if you're sure of what you want.

[CrochetStache]

We are planning for the same thing, saving to purchase our home outright.

In our situation, we move around a lot to do our best to ensure full employment for my husband. No job is secure anymore and we really feel flexibility is an important aspect to keep a career nowadays.

But Alan does provide really great number crunching info to help you make the decision that's right for you.

[Dicey]

We are planning for the same thing, saving to purchase our home outright.

In our situation, we move around a lot to do our best to ensure full employment for my husband. No job is secure anymore and we really feel flexibility is an important aspect to keep a career nowadays.

But Alan does provide really great number crunching info to help you make the decision that's right for you.

I'd venture to say that the best time for you to buy in your situation is after you retire, unless your DH's employment becomes radically more secure. Paying cash can be a trap, because it can rob you of flexibility. If you are forced to move after you've paid cash for a house and the housing market is in one of its regular dips, you'll either have to become a landlord or sell at a possible loss.

[panthalassa]

It all depends on whether it makes more sense to buy or rent in your area.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Thanks for the calculator.  I think I inputted everything as accurately as possible.  And it says that "buying is never better than renting after 30 years" when I go with a 4% annual home price change.

http://calgaryrealestatereview.com/2014/02/03/td-canadian-housing-overvalued-calgary-price-sales-to-rise-in-201415/

In that link it says: "Canadian home prices are “likely roughly 10% overvalued”.  The home price-to-rent ratio points to an overvaluation of 60%. However, this measure is skewed by rent controls.  Calgary average prices are predicted to rise 3.5% in 2014 and 1.2% in 2015".

I thought of an additional factor to take into consideration.  The home that I would be buying would be the one and only home I would ever buy (which is why I want to take my time with it).  So what does it matter if the house increases in value or not?  I'll never see those profits because I won't be selling it. 

[Dicey]

i thought of an additional factor to take into consideration.  The home that I would be buying would be the one and only home I would ever buy (which is why I want to take my time with it).  So what does it matter if the house increases in value or not?  I'll never see those profits because I won't be selling it.

You sound wise beyond your years, panthalassa. There are also intangibles such as your ability to modify your surroundings in a rental vs. your own home to consider. If you care about knowing your neighbors, homeownership seems to be less of a revolving door than apartment living.

There have been points in my life when owning my home ate up over 50% of my take home pay (high COLA + career path change). It sucked and it was scary for a while, but it was worth it because it was my home. I loved its comforting interiors, loved my neighbors, was involved in my community. Eventually, it got better. On top of that, when my career flourished and I finally outgrew the space four years later, I sold it for more than twice what I paid. Sure, those forecasts and percentages are useful, but only up to a point. You sound smart. Take your time, do your homework, listen to your heart and then do what feels right for you.

[Rural]

I thought of an additional factor to take into consideration.  The home that I would be buying would be the one and only home I would ever buy (which is why I want to take my time with it).  So what does it matter if the house increases in value or not?  I'll never see those profits because I won't be selling it.

In this case, also keep in mind ability to age in place. You can always add handrails in a bathroom, but it's much harder to retrofit a hallway that's too narrow for a walker or wheelchair.

[arebelspy]

Thanks for the calculator.  I think I inputted everything as accurately as possible.  And it says that "buying is never better than renting after 30 years" when I go with a 4% annual home price change.

http://calgaryrealestatereview.com/2014/02/03/td-canadian-housing-overvalued-calgary-price-sales-to-rise-in-201415/

In that link it says: "Canadian home prices are “likely roughly 10% overvalued”.  The home price-to-rent ratio points to an overvaluation of 60%. However, this measure is skewed by rent controls.  Calgary average prices are predicted to rise 3.5% in 2014 and 1.2% in 2015".

Yeah, so I'd rent.  It's a very personal decision though, obviously.  :)

I thought of an additional factor to take into consideration.  The home that I would be buying would be the one and only home I would ever buy (which is why I want to take my time with it).  So what does it matter if the house increases in value or not?  I'll never see those profits because I won't be selling it.

Indeed, yet another reason to rent.  If, even after the home appreciates, it's still not worth it to buy, and now you take away the appreciation (because you will never realize it if you never sell), it definitely doesn't make sense.

;)

[panthalassa]

Yeah, so I'd rent.  It's a very personal decision though, obviously.  :)

[...]

Indeed, yet another reason to rent.  If, even after the home appreciates, it's still not worth it to buy, and now you take away the appreciation (because you will never realize it if you never sell), it definitely doesn't make sense.

;)

I recognize that house ownership isn't only about whether a house appreciates or not.  It's about being able to customize it to fit your ideal blah blah blah consumerism handyman pet-ownership blah blah blah.  It's not an investment (these days/years), it's a lifestyle desire.  What Rural brings up about "ability to age" brings up another point in favour of home ownership, in my opinion.

I wouldn't ever be forced to move from my own home unlike a rental which can become a non-rental for multiple reasons, out of the renter's control.  In my old age, do I really want to be moving at all?  I doubt it.  It's only at that point in which I do desire roots. 

Just trying to think through everything!

[panthalassa]

You sound wise beyond your years, panthalassa. There are also intangibles such as your ability to modify your surroundings in a rental vs. your own home to consider. If you care about knowing your neighbors, homeownership seems to be less of a revolving door than apartment living.

There have been points in my life when owning my home ate up over 50% of my take home pay (high COLA + career path change). It sucked and it was scary for a while, but it was worth it because it was my home. I loved its comforting interiors, loved my neighbors, was involved in my community. Eventually, it got better. On top of that, when my career flourished and I finally outgrew the space four years later, I sold it for more than twice what I paid. Sure, those forecasts and percentages are useful, but only up to a point. You sound smart. Take your time, do your homework, listen to your heart and then do what feels right for you.

That's very kind of you to say!  I have been voraciously reading financial blogs for a couple years now; maybe I've actually retained some of the salient points!  My fear of home ownership now is mostly influenced by http://www.greaterfool.ca/, a daily blog by a former Member of Parliament who is similar in tone (perhaps much harsher) to MMM and comments about the state of the Canadian economy and real estate.

Your advice is well-taken.

[arebelspy]

I recognize that house ownership isn't only about whether a house appreciates or not.  It's about being able to customize it to fit your ideal blah blah blah consumerism handyman pet-ownership blah blah blah.  It's not an investment (these days/years), it's a lifestyle desire.  What Rural brings up about "ability to age" brings up another point in favour of home ownership, in my opinion.

I wouldn't ever be forced to move from my own home unlike a rental which can become a non-rental for multiple reasons, out of the renter's control.  In my old age, do I really want to be moving at all?  I doubt it.  It's only at that point in which I do desire roots. 

Just trying to think through everything!

When you're getting older, are you going to want to remodel your house to fit that?  (If you even can - if it's a two story, for example, you're pretty much stuck with stairs, shot of putting in an elevator.)  Or are you going to want to move to a place that already is designed for what you need?

I'd personally rather move to a one-story house with rails, etc. than try and remodel a home to have what I need.  Others may not want to put up with the hassle or money of moving or paying someone to move your stuff.

It really does depend; like I said, a personal decision.  :)

[panthalassa]

When you're getting older, are you going to want to remodel your house to fit that?  (If you even can - if it's a two story, for example, you're pretty much stuck with stairs, shot of putting in an elevator.)  Or are you going to want to move to a place that already is designed for what you need?

I'd personally rather move to a one-story house with rails, etc. than try and remodel a home to have what I need.  Others may not want to put up with the hassle or money of moving or paying someone to move your stuff.

Oh no you misunderstood me.  I don't want to redo a thing.  Ain't nobody got time for that.  That part of home ownership repels me.  I want to buy a place I am satisfied with to begin with.  I do want stairs in my home which is why I am leaning towards a townhouse now but when I am older I would prefer a condo so there are no stairs.  I guess I could rent a townhouse until I'm much, much older and then buy a condo outright.