Ending Homeownership - Just Renting
This week I have been packing.
How did I come to this decision as it was a tough one? I love this home I move out of tomorrow and when I moved in it I thought I would grow old in it. I love the layout and the location. I walk down the driveway in our complex and I enter a beautiful park with a lake that takes you a good hour to walk to the other side and back. I think this is the best place in all of Vancouver to live.
We moved in about 4.5 years ago and I expected the drastic cuts to education to finish being absorbed within about a year. They have not been absorbed and the teaching shortage they were predicting 10 years ago has yet to materialize. Indeed, the week before Xmas a new story reported they continue to graduate more teachers than there are jobs. We had an aggressive plan to get out of debt in 10 years and if things went well, maybe even 8 years. Well, education remained a disasterous career choice and my husband got hit with a 23% pay cut two years after we moved in. A ten year plan turned into 15 years.
In Canada you don't lock into a long term interest rate. You might find something 7 or 10 years, but mortgages renew depending on the term you chose, usually 1 to 5 years. We had a great 5-year rate and I expected to see an increase, but looking at where the economy was heading last summer that 1-2% expectation turned into 3-4%. Indeed, right now rates are up 3%. The other thing is that I think that we've been hit with huge increases in the cost of living in the last 5 years. They report about 2% "inflation" but I think my groceries are up way more than that. I know that in 2002 I could get gas for 35-40c per liter and now it is $1-1.30/liter.
When I did an accounting last summer I was simply shocked at how far the income did not go and where our financial position was in comparison to where I expected it to be, and the difference was simply the cost of living. The school districts also way over hired on call teachers this September so I was expecting at least another 20% pay cut. Last time they did that I saw my pay cut by 27%. I also had no faith that I could do as well on the market this year as I did last year, I am very bearish on the market. Somehow a 10-year mortgage repayment plan turned into 20 years and 10 years of being able to be aggressive about saving for retirement was gone.
I don't know how comparable this huge growth in costs is in Canada compared to the US. One thing that I noticed driving through the US last year was that cost were reasonable where there wasn't a housing bubble and they were outrageous in places where the housing bubbles were alive and well (Las Vegas). Part of me wonders if we get hit harder on consumer goods in Vancouver just because businesses have that much higher rental costs due to the housing bubble.
Seeing a potential pay cut, extra high interest rate reset and the huge increases to the cost of living was enough to say forget it. Home ownership has been nothing but a struggle that has always sucked up an enormous amount of the household income. We listed our home at the beginning of September, and I got a job in the North West Territories. We complete our sale later this week, but tonight is my last night in this home.
So what did I learn?
1) Consider carrying costs.
I'd say the one regret I had fairly quickly was our home was more than we needed and the carrying costs were more than I expected. You simply can't control those costs. Our utilities doubled, property tax and maintenance were both significantly higher. While those costs were manageable when you had two people working, I had concerns about them for retirement. But I did always look at the extra home as part of a retirement plan. We could downsize and live on the difference in equity.
2) Consider wants versus needs.
We fared ok through several strong economic hits against us because we started with a 10-year plan. This was a move up for us. If we had moved up into something that would have required a 20-year plan we'd have run into trouble where we would have had difficulty remaining in the driver's seat in our choices. Certainly when we moved it the place was well within our means. The first two years before my husband's pay got cut we were making payments 78% greater than we do today. What I learned from this is to really carefully consider wants with needs.
3) Well thought out plans can go wrong
What can I say, I don't think there was a thing that you could point to and say there was an unreasonable expectation in our original plan. Few plan on pay cuts, or excessive rate resets, and the increases in consumer prices is crazy.
Don't get me wrong, we did not have to sell, but housing simply takes too much of our household budget. It has from the day I became a homeowner and I just got tired of it.
Right now the economics of renting are enormously better. I worked out that the landlord of where we are moving is getting about 2.1% on his equity after maintenance and taxes are paid.
I will be moved into my Vancouver home next time I get online and I head back to the North West Territories on Saturday.