Horny in Hamilton

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Helen hates her house. “Well,” she demurs, “maybe hate’s too strong a word. But you should see it – it’s so small.”

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She and Duane bought in Hamilton eleven years ago. But he’s a problem. “My husband reads your blog every day,” she says. I am truly sorry, Helen.

“He and I are 37 & 39 years old, recently paid the house off, have 2 kids, and some pets. Our place is 900 sq feet small, 2 bedrooms and our neighbourhood has turned into a student rental area. We live near McMaster University and I would like to move about 10 minutes away to a 1200 sq foot house, 3 bedrooms, garage, pool and mainly no students.

“There is a not so great house available now for a reasonable price (ours about $300 000, this one about 350 000).  I am self employed and will work more as of next September, when our youngest goes to JK and my husband makes $60,000. We have a small amount of savings and my parents that will give us $20,000. I think we could move with almost no mortgage, my husband thinks the market will go down and we should wait. My worry is that our house, in this student rental area, will go down much more than regular residential areas. We would love to hear your thoughts. “

I brought you Helen’s letter for a couple of reasons.

First, Hamilton. This is an urban area of 721,000 people spilling over a gorgeous escarpment and embracing a massive harbour which was once a grimy, hectic, major Great Lakes port defined by the belching coke ovens of butt-ugly world-class steel mills. But this is the post-industrial age when cars are made of plastic and marketing. Steeltown is cleaner, greener and awakening.

Toronto is 68 km away, past the Lakeshore mansions and endless subdivisions of Burlington and Oakville, then through the wannabe urbanity of big-box Mississauga. You can get on a commuter train in downtown Hamilton at 7:20 am and emerge at King & Bay in time to get a Grande Bold and be at your desk at nine.

But is the distance worth it? Is this really a godless-GTA alternative?

For some, absolutely. The average property (detached and condos combined) in Toronto is $488,647 and the average detached home in 416 currently sells for $761,273. In Hamilton the average property costs $296,973 and the average SFH is $320,525. Yes, a 58% discount. You can put up with a lot of ugly for that.

What’s more, average detached house prices in Hamilton have risen 11.7% in the past year, compared with a 1% annual gain in Toronto. And while homes in 416 are taking longer to sell now, days-on-market numbers in Hamilton are shrinking. Besides, does Mississauga have a bigtime football team, or Markham boast a soaring Skyway? Hell, Hamilton even has a castle. Plus an actual downtown. And a mountain, sort of.

Second, Helen reminds us that – even in an affordable place – house lust is a deadly sin. It looks like she’s using poor, downtrodden students as an excuse to snap a bigger home. She’s suggesting Duane and her use all of the proceeds from selling their paid-off home, cash in their meagre savings, and suck money out of parents to move ten minutes away, and still have a mortgage. That’ll leave these almost forty-year-olds with no liquid assets, a new debt, two kids, no savings or investments and only one steady income of a modest sixty grand.

In a flash, Helen and Duane will be fifty with two expensive teenagers expecting to go to college. Probably still no liquid assets or retirement nestegg – just a house. That means no diversification and a ton of risk if real estate stagnates for a few years. Houses may be ridiculously cheap in Hamilton for a city of that size and location (homes in icy, sad Saskatoon cost far more) but they don’t pay dividends or interest, while sucking off money for taxes, insurance, maintenance and renos. In short, emotional security is not the same things as financial security – an epiphany that usually comes far too late in life.

So, Helen, suck it up. The best thing you can so for your family is stay put, get those savings into growth assets inside some TFSAs, start an RESP for the kids filled with ETFs, and be nicer to the students.

For the rest of you, check this out. And what a great name for a street.

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avatarGarth Turner - The Greater Fool posted Friday, November 23rd, 2012.

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