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The first-time homebuyer's dilemma
So it seems like the housing market in Vancouver and the GTA is overheated, driven by unrealistic expectations of future price growth. People who move are keeping their old place instead of selling, because they expect prices to go up; investors are doubling down and borrowing against existing properties to buy more, because they expect prices to go up; first-time homebuyers are borrowing huge amounts of money, because they expect prices to go up.
For the first-time homebuyer, would it make more sense to wait for the insanity to fade, which is what eventually happened with the pre-2008 housing bubble in the US? The problem is, that could be years away. ("Markets can stay irrational longer than you can stay solvent.")
I thought this question described the dilemma exactly:
I have a few relatives who are very well off and lucked out by buying real estate in Vancouver many years ago. Those relatives are now offering me 100K for a down payment (I have roughly 100K saved up) that I would have to pay them back within the next few years. Knowing that this is a huge amount and the fact that I am currently single, I am really not sure what to do. On the one hand, I am really scared to take on this much debt and on the other hand I am also scared that house prices will keep raising and the average house in Vancouver will soon cost 2-3M.
To summarize the situation:
You're fine with renting for now, but in a few years you'd like to own. If you expected prices to be stable, you'd just keep renting.
Prices are high and buying now will be a stretch (you'd have to borrow a lot), but you're worried that in a few years they'll be even higher.
The problem is that there's a lot of uncertainty. The general rule is hope for the best, plan for the worst:
Bismarck in particular never thought that events could be predicted with precision. When a policy was pursued a range of outcomes could be expected. The trick was to develop policy where the minimum outcome (today we might call it a worst case scenario) was acceptable. If a triumph ensued great. If it was something in between, don't die of surprise.
In this situation:
(1) If you borrow a lot of money and buy now - worst case is that there's a crash.
(2) If you continue renting instead of buying now - worst case is that prices keep going up.
The dilemma is, between these two worst-case scenarios, which of the two is more acceptable - owning a place that you borrowed heavily to pay for and is now worth a lot less, or renting indefinitely because owning is completely out of reach?
I think renting indefinitely, and saving for retirement by investing, is a legit option - it's not true that renting is "throwing your money away," and as an investment, real estate has a lot of disadvantages. Summary of Alex Avery's The Wealthy Renter. But I also totally understand that for many people, it's important to have the security of owning.