There’s been no shortage of fear-mongering about the Canadian housing market – whether that’s Deutsche Bank stating it is overvalued by 65 per cent, or U.S. hedge funds shorting the country’s banks and mortgage providers.
Jerome Hass, a portfolio manager at Lightwater Partners Ltd., had similar views about the London, England, property market just under a decade ago, as well as Australian housing prices 15 to 20 years ago.
“I thought Sydney was so overheated that it had to implode sooner or later, he said. “The same goes for London. I lived and worked there, but never wanted to buy property because it seemed so expensive.”
At an individual level, I think the worst thing people can do is pay down their mortgages
Then Hass moved back to Canada and bought a house in Toronto. He couldn’t believe how cheap it was.
“Go visit friends in London and see how they live,” Hass said. “Then go visit people in Toronto, Vancouver and Montreal. I don’t think too many people would think Canadian housing is overvalued after that.”
For Canadians that put the minimum 20 per cent down on their home purchases, there seems to be no more attractive asset class from a portfolio perspective. Where else can you get a bank to lend you at a ratio of five-to-one, phenomenally low volatility, steady appreciation and tax free capital gains?
This prompted Hass to conduct an economic thought experiment of sorts. He wondered how one could make their portfolio as inefficient as possible. The answer? Pay down your mortgage.