Real estate investing cools off with monster mortgage payments

Homeownership is a milestone that we've been told is one of the keys to financial security and an important investment, but with the mortgage payments steadily rising for many new homeowners, that may no longer be the case.

Driving the news: A new report from National Bank Financial Markets found that mortgage costs are taking up 67.3% of income—the highest since 1981. 

  • That’s calling into question the wisdom of thinking of a home as an investment (rather than something to, you know, keep you warm and sheltered).

  • When your house eats up a bigger slice of your income pie, you have less money left over to invest in stocks, bonds, and other assets that will generate returns for you down the road.

Why it’s happening: Higher interest rates have made mortgages more expensive, increasing the real cost of owning a home. 

  • That’s been compounded by inflation in the costs of things homeowners need for renovations and maintenance of their property, including materials like lumber and skilled labour.

One financial planner crunched the numbers on their home and found that, even for homes purchased ten years ago when prices were much lower, “for homeowners living in Alberta, Saskatchewan, or in Atlantic Canada, the math isn’t always as favourable.” 

  • Homeowners in BC and Ontario, where home values have increased faster, have performed better, but it’s unclear if the gains of the past decade will be repeated in the next ten years. 

Bottom line: Homeownership comes with many benefits (never getting renovicted by your landlord is a plus, for sure) but its status as the ultimate investment and bedrock of financial security for Canadians is no longer certain.