Good to have one?  Of course – but if you do it the wrong way, it could annihilate you financially.  Here’s a mainstream newspaper finally admitting it;   Keep in mind here that 50% of US homeowners are now officially “underwater” on their mortgages when realtor fees are factored in.  FIFTY PERCENT!

Is home ownership really a smart investment?

http://www.thestar.com/article/1091881–is-home-ownership-really-a-smart-investment

If Toronto fireman Alexander Gunn was alive today, he might well feel like the Warren Buffett of his times.

The semi-detached home he bought in Toronto’s Riverdale neighbourhood for $1,200 in 1906, sold in November for $825,000.

Conventional wisdom has it that buying a home is one of the smartest things we can do. If you have been lucky enough to live in the Greater Toronto Area, especially in the last 10 years when house prices have doubled, that would be true.

But over the long run, is home ownership such a great deal? To find out Moneyville took a close look at Gunn’s house over the last 105 years.

Here’s what we found: Adjusted for inflation, an investment in the stock market would have yielded a better return, including all the ups and downs — starting with the 1929 stock market crash that ushered in the Great Depression.

Toronto was still rebuilding from the Great Fire of 1904 when Alexander Gunn was promoted to district captain after years of climbing the ladder at the city’s No. 3 firehall at Yonge and Carlton Sts. With his new responsibilities came a pay hike, from $850 to $1,000 a year.

It was the nod he needed to buy his first home.

The three-storey house in what is now known as Riverdale was brand new, part of a development on what had been fields where locals grew food to sell at market. It promised good luck: A shamrock had been crafted into its soaring gable, most likely by Irish immigrants who helped build these turn-of-the-century subdivisions.

Each day on his way to work, Gunn would have headed down Broadview Ave. with its sweeping view of the downtown and watched the burned-out city being rebuilt.

He would have kept warm at night in front of the house’s wood-trimmed fireplace and watched through its lead-glass windows as thousands more homeowners flocked to the area after 1912 when Danforth Ave. was paved and, later, the Bloor Viaduct erected across the Don Valley.

Gunn paid just a little more than a year’s salary for the modest house on a 20 foot by 112.5 foot lot. Today, a buyer would pay a fortune, relatively speaking — about five times their annual income given that the average price of a GTA home in October was $465,000 and the average household income $82,000, according to the Canada Mortgage and Housing Corp.

Gunn and his family lived at 56 Simpson Ave. for more than four decades, through two World Wars, the Great Depression and the remarkable transformation of Toronto.

The house changed hands just four times before its most recent sale. And the average annual gain over the 105 years, adjusted for inflation, was just 3.9 per cent.

“If I had to give new homebuyers some advice, it’s that houses aren’t always the ultimate investment. You should never bet the farm on the house, so to speak,” says Francis Fong, an economist with TD Economics.

Fong and his colleague Sonya Gulati helped Moneyville adjust prices for inflation and compare the appreciation of the home against Toronto Stock Exchange returns.

The challenge was to compare apples to apples. We had the home’s sale price going back to 1906, but the Bank of Canada’s inflation records don’t begin until 1914. Toronto Stock Exchange records start in 1919.

So we opted to track gains from 1947 onward, seven years after Gunn’s death, when the house sold for $6,300. We found that in those 64 years, the house appreciated at an average annual rate of 2.3 per cent, adjusted for inflation. (Inflation averaged 3.9 per cent during the same period, largely because of spikes in the 1970s and early ’80s.)

The TSX, on the other hand, did marginally better — producing average returns of about 3 per cent.

But when the everday costs of a house were included, things likes taxes, maintenance and upkeep, 56 Simpson fared much worse

“A house is not a good investment. It is a roof over your head,” says James McKellar, director of the real estate and infrastructure program at York University’s Schulich School of Business.

These days, homeowners in hot markets like Toronto and Vancouver may feel they have hit the jackpot: Most Toronto homes have virtually doubled in price over the last decade and in Vancouver they have almost tripled.

But once you factor in the other costs — interest on the mortgage, new kitchens, bathrooms, furnaces and electrical updates, “you’re lucky to make anything,” says McKellar. Studies have shown that it’s $800 a month cheaper to rent a 1,000-square-foot home than to own it, he notes.

“By any empirical study, houses do not inflate. They are a cost. But we all have to live somewhere.

“Calling a house a good investment is a process of rationalization. The last thing you want to admit is that, ‘I bought the house because I fell in love with it.’”

Catharine Grossi is proud to admit that. She and her husband Paul bought 56 Simpson for $462,500 back in 2001 because they were keen to move back to the city from the suburbs.

“When I saw that so much of the original house was there, and it was updated . . . That was good for me. I loved it as soon as I saw it.”

She became fascinated by the home’s history — she spent a day at the City of Toronto archives — and details such as its original fireplace, century-old exposed brick, the shamrock.

The house proved to be the perfect place for Grossi’s two sons and daughter to drop their bags after university or stints abroad.

Grossi wasn’t thinking so much about the gains she’s made, but rather the life she’s lived at 56 Simpson when the house sold Nov. 4. She and Paul are downsizing into a home two doors from their daughter and her newborn twins.

Grossi asked just one thing when her realtor called to say there had been an offer at asking price: “Do they love the house?”

James McKellar gets that.

He has lost money in the housing market: About $25,000 in the wake of the oil patch bust in Calgary in 1983 and $35,000 on a Boston home during the ’90s recession.

He now owns a home in Moore Park.

“The big drawback of renting is that it doesn’t give you the emotional satisfaction of owning,” he says with just the slightest chuckle.

“At the end of the day, when you go home and make dinner and relax, the numbers really don’t matter.”

Also read:

How we paid off our mortgage in three years

Why I sold my house and rent instead

What an awesome story with some great ideas!  Just had this blog sent to me:

The following is an amalgamation of “family economy” stories from EO families who have implemented the family financial system laid out in Richard and Linda Eyre’s new book, The Entitlement Trap: How to rescue your child with a new family system of choosing, earning, and ownership. The Eyres can be reached at www.TheEyres.com.

My spouse and I got to thinking one day how “nuts” it was to accumulate money and wealth, but never teach our kids how to handle it or even how to have the financial savvy necessary to thrive in this topsy-turvy economic world they are growing up in.

We realized that we had an economy in our own home, but it was essentially a welfare and entitlement economy.  Kids asked for money (or toys or whatever) and got them.  They felt that they deserved whatever they wanted and whatever their friends had, without working or waiting.  And the “allowances” they received were essentially hand-outs.

• Were we setting them up for failure?
• Was our indulgence fostering an entitlement attitude?
• Were we undermining their initiative and motivation and even their entrepreneurial spirit by giving them too much?

Then we ran across a bold claim by authors and popular EO speakers Richard and Linda Eyre, who said that we could create a little microcosm of the real economy within our own homes. Specificallt, they suggested:

• Instead of “allowance” or hand outs on Saturdays, we could have “pay days,” where the amount kids got was directly proportionate to how many of their tasks they remembered and completed and kept track of.
• Instead of an open wallet or purse, we could establish a “family bank” of a big chest with an impressive lock on it and a slot in the top where kids put a slip each day showing how many tasks they finished (signed or initialed by a parent or tender).
• Instead of cash, each child could have a checkbook with a check register to keep track of and let them deposit or withdraw from their account in the family bank (which would pay interest on the portions they elected to save).
• And instead of them living like entitled prince and princesses in their castle, there could be simple tasks they were responsible for … from cleaning a public area of the house or kitchen to having the initiative to get homework and music practice done without prodding and before dinner.

We introduced the “family economy” to our kids, explaining that they could earn much more money on this scheme than they had been getting as allowance, but that the catch was that they now had home responsibilities to keep track of and that they now would buy all their own “stuff.”

The elementary and middle school kids went for it immediately.  They were flattered by the responsibility and persuaded by the adult-like recognition of having their own checkbook and account in the family bank.  They loved having more money and having responsibility to buy their own stuff.

The teenagers were a little less enthusiastic, until we took them out to dinner and talked about the fact that they had only two or three years left at home before they went off to college and that this “family economy” would make them more independent and prepare them to handle their own financial affairs once they were living away from home.

The learning moments started almost immediately. I had my 9-year-old son with me on a trip to the mall, and he brought his family checkbook and almost immediately started asking, “Can I have this?” or “CanI have that?”  Instead of the “no, no, no” answers of previous shopping trips, I replied, in my best banker imitation, “You can have whatever you want to buy.”

He had me hand down a toy to him and then asked a question he had never asked before, “How much is it?” I showed him the price tag and then he suddenly handed the item back to me. “Put it back, they want twenty dollars for that— they must think I’m stupid!”

Our daughter blew all of her money on a pair of $120 jeans and had no money left that weekend when her friends wanted to go to the movies.  “Mom, what can I do?” Again in my non-emotional banker’s role, I said, “Sorry, I feel your pain.  Maybe you better budget a bit better next week.”

The bottom line is that everything changed … and evolved. We negotiated an interest rate that the bank would pay on the part of their earnings that they saved. They made small-consequence mistakes weekly, and learned from them.  The “earned ownership” that they felt for their money transferred to the things they bought with it, and they began to feel pride in things and take care of them. They negotiated with us for “matching funds” when they were saving for a bigger ticket item. They began to become financially savvy before our very eyes as we tried to make our little family economy a true macrocosm of the real world economy.

To sum up:  They became more and more entrepreneurial!

“Sure, I know the images are compelling. Long lines of young people snaking around a new housing development complex someplace in suburban GTA, Vancouver or Calgary. Camping out all night. Living off Tim’s. Peeing in the bushes. Desperate to get inside and buy a new house in 14 minutes. Then staggering into the sun in a post-coital HGTV kinda haze, sales agreement in one hand, mortgage doc in the other, feeling great about being ravaged.

The first-time buyer is the holy grail of real estate. Lenders like the big banks court them. Developers drool over them. A whole housing industry creates products for them. And politicians suck up to everyone, with the creation of misleading programs like the Home Buyers Plan.

Like the wood that fuels a fire, these hormonal young things give energy to an entire real estate market, starting the climb on a property ladder which ends up creating an endless chain of sales and sells. Well, endless until now.

There’s mounting evidence – despite the high-profile events where TV news cameras are always invited – that the kids may be taking a pass. In fact, this is a prime explanation for a phenom that’s tricked many people and which answers the question, why are prices going up when sales are going down?

You know what I mean. For the last six months, sales of houses in key markets like Toronto, Calgary, Vancouver, Edmonton and Winnipeg have tanked on a year-over-year basis. And yet average prices have held firm or even (like in the GTA and the Lower Methland) shot higher. Days ago I recounted the orgiastic grunts of pleasure which could be heard over Richmond and Surrey as the latest property assessment arrived, showing a delighted population that they’ll soon be paying more in taxes.

But how can prices swell like a gland while sales seek Cialis?

One explanation (not a bad one) is tumbling listings. As fewer homeowners put their properties on market, the competition between the remaining buyers results in average prices rising, even as sales levels fall. After all, prices are far more volatile on any market (including stocks) when trading is thin.

But here’s a better reason: a seriously declining number of young buyers is resulting in falling sales of cheaper (starter) homes, which leaves more activity (in relative terms) in the pricier end of the market. So, average prices rise. That this is a statistical quirk may be of no interest to most of us. But the fact realtors then beat the crap out of us with the same old stick – buy now or forever be priced out – is highly relevant. And wrong.

At least one real estate guy gets this, and I was alerted to his blog after he complained about mine. (See? I have a purpose.) Norm Fisher crunched the numbers in his Saskatoon market and found a big 18% drop last year in the sale of houses under $300,000, and a corresponding 13% rise in deals for places worth more than that. Of course, this would account for the fact that real estate had a crappy year in Skatch, and yet houses ‘cost more.’

But they haven’t really risen in price. Only the average price is higher. Lots of houses are falling in value, at the same time they remain unsold. And I think Norm has highlighted a situation which is now affecting every market in the country – certainly the ones I have done a sales analysis for.

This also suggests 2011 could well be the year the fire starts to go out. As I have been saying for some time, sales drop first, prices second – especially when the first-time buyers start to fade. And why would this happen? Let us count the ways.

First mortgage rules stiffened a bit in April, with first-timers having to qualify for five-year loans. Now it looks like F is poised to strike again at the urging of the big (scared) banks, who are having a few kittens over the 5/35 mortgages out there. (As I have told you, these high-risk loans now account for the vast majority of all new ones).

Second, interest rates rose in 2010 with the Bank of Canada hiking its key rate three times, jacking VRMs a similar amount. And while five-year money declined for a few months as bond yields tanked, all that’s now in the rear-view mirror.

Third, debt. We’re drowning in it, the kids included. In fact, young couples coming out of university today sometimes already have student loans the size of mortgages. Look for this to continue as the feds trim their contributions to education, a la Britain.

Fourth, this is the year Mark Carney slips the whoopee cushion under the middle class. Interest rates will be rising just as soon as the little nipper figures he can do it without murdering the economy. The central bank boss is determined to cut back on cheap credit, now that we’re all hopelessly addicted to it. Such a joker.

Fifth, the virginal young among us may have too many hormones, but they’re also totally wired. They can see and smell real estate deflation taking hold. With teensy down payments, they know any drop in prices can wipe them out in a weekend. Why buy now, when houses may well be cheaper in six months? Why self-destruct just like mom and dad? It’s amazing what six years of post-graduate studies can do to a mind.

So, yeah, I agree with Norm. Except he’s a realtor.

And he’s doomed.”

By JANNA HERRON AP Real Estate Writer NEW YORK (AP) –

Home prices are falling faster in the nation’s largest cities, and a record number of foreclosures are expected to push prices down further through next year.

The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday fell 0.7 percent in September from August. Eighteen of the cities recorded monthly price declines.

Analysts say high unemployment, tight lending standards and millions of foreclosures will weigh on home prices.

“Unemployment is still high, people are afraid of losing their homes and credit is hard to get,” said Maureen Maitland, vice president of S&P indices.

Still, Americans are gaining more confidence in the broader economy, a new report Tuesday showed. The Conference Board, a private research group based in New York, said consumer confidence rose to a five-month high in November. Yet the housing market remains depressed.

Among the cities in the Case-Shiller index, Cleveland recorded the largest decline. Prices there dropped 3 percent from a month earlier.

Prices in San Francisco, Los Angeles and San Diego, which had been showing strength this year, also dropped in September from August.

Washington and Las Vegas were the only metro areas to post gains in monthly prices.

The 20-city index has risen 5.9 percent from their April 2009 bottom. But it remains nearly 28.6 percent below its July 2006 peak. And home prices have fallen in 15 of the 20 cities in the past year.

Prices in Tampa, Fla., fell to their lowest point since 2003. Portland, Ore., Charlotte, N.C., Miami are also near their low points since the U.S. housing market collapsed in 2006.

Prices were on the upswing in many cities from April through July, mostly boosted by government tax credits which have since expired.

Job worries and record high foreclosures are dampening buyer demand and weighing on prices. The national quarterly index, which measures home prices in the nine U.S. census regions, dropped 2 percent in the third quarter from the previous quarter.

“Gold, silver continue rally in uncertain times”

Vikram Barhat, November 23, 2010 from Advisor .ca

Contrary to what its dizzying rise would suggest, gold is not one of the best performing commodities. It will, however, continue to be an alternative currency to the U.S. dollar as investors take a flight to safety, according to experts at BMO Harris Private Banking.

Admitting that gold has run too far too quickly, experts at the bank said investors will continue to hoard gold, and other precious metals, as a hedge against devaluing global currencies, particularly the U.S. dollar and euro.

“Gold is not trading on inflation expectations, it’s really trading as an alternative currency to the U.S. dollar,” said Paul Taylor, chief investment officer, BMO Harris Private Banking. “There’s the expectation that the reflation of the U.S. economy is not good for the U.S. fiscal debts and deficit situation.”

The Obama administration endorses a weak currency environment because “that, of course, makes [the U.S.], from a trade perspective, more competitive” but “annoys their trading partners to no end.”

Many investors are unaware that gold has been rising for 11 years now, said Michael Herring, investment strategist and managing director, BMO Nesbitt Burns. “It bottomed at around $252 in 1999 and has since more than quintupled. It’s actually not one of the best performing commodities in the complex.”

Oil bottomed at below $10 and it peaked at about $147 in 2008 and is roughly mid-$80-range right now. Copper has turned in a smashing performance over the same period of time. But gold gets the spotlight. “It is really the reflection of the change in monetary backdrop and the change in monetary response function that we’ve seen out of central banks, most particularly out of the Federal Reserve,” said Herring.

A deepening lack of faith in paper currencies has been driving investors globally to adopt gold as an alternative currency. “If you look at currencies around the world they are all faith-based initiatives,” said Herring. “They are all paper currencies backed by nothing.”

Global currencies have all lost value against a basket of goods at different rates and different times. And the biggest loser of value has been the U.S. dollar.

“I think there is a very large contingent of investors who recognise that the history of central banking over the last 100 years is one of consistent devaluation of the value of currency relative to the basket of goods,” said Herring. “I don’t think there’s any reason to believe that’s stopping. If anything there’s a risk that it will accelerate once again.”

Investors who either can’t afford gold or think it’s overvalued have been turning to silver — commonly dubbed the poor man’s gold. These investors, mainly in Europe, are the reason why the price of silver has really ramped in the last little while.

“With everything that’s going on with Europe, it’s reasonable to believe that Europeans are starting to hoard some silver,” he said.

It’s no secret that the euro is in bigger trouble now than any time since it was formed in 1999. European investors know that and are clutching at silver for support.

“I do think there’s some evidence that folks are seeing the real cracks in the foundation of the euro here and they are hoarding silver,” said Herring, adding that among these may be investors who think that gold has already made too much of a move or that the price of an ounce of gold is too high.

Some experts are going so far as to say the end of euro is nigh, at least in some of its current member states. Jack Ablin, chief investment officer, Harris Private Bank in Chicago is talking endgame. He said if the contagion of debt spreads, the central powers of the EU will cut troubled countries loose from the common currency.

These countries would revert to their pre-euro currency at a pre-set exchange rate, and be allowed to devalue that currency before being allowed back in at some future date.

“Right now, the euro-zone and the euro banks are in somewhat of a denial,” said Ablin. “They don’t want to take a haircut but I do think eventually we are going to see the (Greek) drachma or Irish pound devalue their way back to prosperity.”

Given that they’re all locked together in a single currency, it makes sense at least for now for EU citizens to cling to gold or silver or any hard assets, he said.

Scotiabank will pay C$21 for each DundeeWealth share in cash or stock, the bank said today in a statement. The Toronto- based lender owns about 18 percent of the asset manager.

Scotiabank said it will be the fifth-largest mutual fund manager in the country after the purchase, part of Chief Executive Officer Richard Waugh’s plan to expand the bank’s asset-management business.

Over the past three years, Scotiabank has increased its asset-management operations in Canada, purchasing stakes in DundeeWealth, CI Financial Corp., and buying the Canadian business of E*Trade Financial Corp.

Scotiabank fell 23 cents to C$54.42 in 9:39 a.m. trading on the Toronto Stock Exchange. DundeeWealth was halted from trading. The stock closed on Nov. 19 at C$19.47.

Here’s the article:

DETROIT/NEW YORK – General Motors Co prepared for a dramatic return to the stock market on Thursday with what is set to become the world’s largest share offering less than a year and a half after emerging from bankruptcy. GM shares were set to begin trading on the New York and Toronto stock exchanges, capping the first stage of a turnaround that has taken the 102-year-old automaker from near-death in 2008, via a 2009 bailout, to unlikely Wall Street flotation favorite in 2010. President Barack Obama hailed what is already the biggest IPO in U.S. history as a “major milestone” for the company’s turnaround and the entire U.S. auto industry. GM raised $20.1 billion on Wednesday after pricing the shares at $33 each — the top of the proposed range. The IPO values GM at about $63 billion. Including an option that would allow underwriters to sell more shares, GM looks set to raise $23.1 billion, eclipsing the record $22.1 billion raised by Agricultural Bank of China in July. The successful sale offers a partial exit for the Obama administration after its unpopular $50-billion bailout. The rescue left the Treasury with a 61% stake and the automaker with the embarrassing nickname “Government Motors.” // // The government part of the share sale amounts to 23.9% rising to a possible 27.5%. At $33 a share, the partial sale represents a loss of about $9 billion on taxpayers’ original investment assuming the extra shares go at the same price. The GM stock price will need to rise by 47% to just under $49 for the U.S. government to break even on its follow-on stock sales. Trader Stefan de Schutter of Alpha Trading brokerage said: “It’s absolutely remarkable how the sentiment has totally changed over such a short time period … it is evident that investor optimism surrounding the GM IPO is also pushing car stocks in Germany so that is certainly a good sign.” By 1155 GMT the Stoxx 600 European Autos Index was up 2.43%. “It is seen to be a better bet with stronger and clearer financial position after its restructuring and IPO, and that will give investors confidence to hold the stocks,” said William Lo, analyst at Ample Finance Group, adding: “We expect to see about 10% upside (on debut)..” David Buik, senior partner at broker BGC Partners, said the indicative grey market price was $37-37.50, a gain of as much as 13.6%. Even after raising the IPO price and offering size, underwriters had far more potential investment lined up than the deal could accommodate, sources said. Sovereign wealth funds in the Middle East and Asia and other large international investors will account for less than 5% of the total GM offering including common and preferred shares and the overallotments, a source said. China’s SAIC Motor Corp is among shareholders, confirming on Thursday that it bought a 1% stake. The reversal in sentiment toward GM pointed to renewed confidence in an industry that was pushed to the brink of collapse before unprecedented government intervention. It also offers hope for a range of auto-related companies, including smaller automaker Chrysler, that are looking to tap the credit and equity markets in coming months, analysts said. Sergio Marchionne, CEO of Chrysler partner Fiat said the IPO would help to understand the market’s logic in terms of pricing expectations. GM’s initial valuation represents a more than 9% premium to Ford Motor Co — GM’s nearest rival and the only U.S. automaker to have avoided a government bailout. TEST FOR THE NEW TEAM The GM IPO was the first major test for GM’s new management team led by Dan Akerson, 62, a former head of buyouts at The Carlyle Group who was placed on the GM board by the Obama administration. “The new leadership team is doing very good work. Market share is up, prices per unit are up,” said Xavier Mosquet, a senior partner at The Boston Consulting Group who advised the Treasury on its intervention into the U.S. auto industry. Akerson was set to ring the opening bell at the New York Stock Exchange on Thursday to mark the start of GM’s trading under the familiar “GM” symbol it had before bankruptcy. For decades, GM was one of the most widely held and heavily traded shares and its collapse wiped out savings for many small investors including GM retirees and workers. Still, investors clamored for a piece of the GM IPO, sources familiar with the situation say. Retail investors will represent over 20% of the IPO, or more than $3 billion of stock, a source said. Big North American mutual and pension fund investors will account for more than 90% of the IPO, the source said. In GM’s pitch, executives led by Akerson made the case restructuring had left the automaker with sharply lower costs and the ability to withstand a downturn as punishing as the one that took hold in 2008 without losing money. BRIGHT SPOTS … AND THEN EUROPE GM is on track for its first full-year profit since 2004. It has touted its market-leading position in fast-growth emerging markets led by China, and success with redesigned cars like the Buick LaCrosse, as well as the ability to innovate through the crisis embodied Chevy’s Volt plug-in hybrid. Analysts still see challenges for GM, including the overhang of the U.S. government’s 33% post-IPO ownership stake. “I think that GM’s model still very much lags other companies’ models,” said analyst Heino Ruland of Ruland research. “Not only Chrysler and Ford but also European groups. The pricing is also rather high,” he added. Other investor concerns include continued losses in GM’s European arm — $1.3 billion over the past three quarters — and contract talks next year with United Auto Workers. Post-IPO, a union health care trust will keep 13% of GM shares with a board seat representing its interests. UAW President Bob King said on Wednesday that he welcomed a high GM stock price but said his workers would not offer any new concessions next year.

//