Why buying my home was a bad investment

After a decade of low mortgage rates coupled with rising home prices, the common financial wisdom has been that a house is a good investment.

But is it? Desirae Odjick, the Ottawa author of the personal finance blog Half Banked, did the math after buying her first home. 

Here's what she told the CBC's Karla Hilton. (Answers have been edited for length and clarity.)

Q.  You crunched the numbers. How did you reach this conclusion that a house is not a good investment?

The thing no one takes into consideration when they hear housing [value] grows two per cent a year, or four per cent a year, is that there are other costs associated with ownership that quickly eat away that percentage growth.

You have property tax, which is approximately one per cent of your home's assessed value, every year.

You have maintenance and repairs, which everyone says to assess at about one per cent of your home's value, every year. And maybe you don't spend that every year, but in year five, you have a giant roof repair. 

Then you've got your mortgage interest. Take the example of a house that costs $400,000, with 10 per cent down, over a 25-year term. If the interest rate holds at three per cent, you're are looking at $150,000, just in interest, on your purchase. That eats up a ton of your home's value.

So even if the value [of your home] grows three per cent a year, you are still not coming out ahead.

Q. Did this surprise you, when you did the math?

It really did. "We bought a house, and we are not going to come out ahead?" 

I consider it the cost of having the setup I want, being able to live in the house I want, being able to own it.

If that costs me some money, that's fine, but it's only fine because I know this is not my retirement nest egg, this is not where I'm looking for my money to grow over the long term.

Q. But there are people who have seen the value of their house double or even triple over the past decade. How do those people fit into this analysis?

I would have to say it's the same as any other investment. Past performance doesn't guarantee future results.

I do think we are at a point in the market where prices are high, especially if you are a millennial looking to get into the market. Even if you are outside Toronto or Vancouver, prices are high.  

Q. For many people, buying a house is a primary goal, and they feel buying a house is a good financial choice because it is "forced savings." What do you say to them?

It is also forced spending. And that's the thing that trips a lot of people up.

And yes, part of every payment goes towards your equity, but early on, about half of it goes towards interest. So when people talk about rent and throwing money out the window, interest is also throwing money out the window. 

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