The new FHSA has a lot of people wondering ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ Houses can be great investments — for some The recent launch of the First Home Savings Account — which can help you stockpile up to $40,000, tax-free, toward a first home — has many Canadians considering jumping into the housing market. But the resilience of home prices and record-high mortgage rates really complicate that decision. Before getting into the particulars of how to think about a home as an investment, it’s worth asking yourself how important owning a home is to you. For some people, buying a home provides a sense of comfort or consistency (and the ability to mark your kids’ height on a wall without angering the landlord). Also, for those looking to live in neighbourhoods that don’t have a lot of rental options, buying might be the only way in. If you’re in either of those groups, I would weigh that more heavily than optimizing for financial returns or wealth building. After that, it comes down to your specific circumstances. Here are a few important things to keep in mind as you choose the right option for you. Forced savings The main determinant of wealth isn’t investment performance; it’s how much you’re able to save from each paycheque. Basically, if you save a lot in relation to your expenses, you are much more likely to build wealth. And one big benefit of a mortgage is that it forces you to save. This is not to say that buying is better than renting, but if you look only at overall savings, studies have found that most people save less when they rent. The risks and rewards of leverage Going into debt to finance a house (or any asset, for that matter) offers higher expected returns, but it also comes with a wider range of outcomes. The more leverage you take on, the more money you stand to make if your home appreciates. But the opposite is also true. When using leverage, your primary consideration should be "what's my range of outcomes" (as opposed to what size payment you can afford). You don’t want to lose your house if you lose your income and default. Limited diversification For many people, buying a house concentrates a majority of their investments in one asset. And it’s not a very liquid asset. That’s not necessarily a problem, but it’s like having all of your retirement fund in a single stock. It makes you dependent on local market conditions if you want to sell your house to fund retirement, and it reduces your ability to change your risk profile as you get older. Also, if all of your wealth is tied up in your home, it’s much more complicated to get access to that money in retirement than it is to pull funds from an RRSP or TFSA. (For a detailed look at what can happen when a community’s wealth is concentrated in housing, I highly recommend Amy Goldstein’s Janesville: An American Story.) If you’ve thought through these points and are interested in buying a home, the FHSA is a phenomenal deal. The money you put in it reduces your immediate tax burden by lowering your taxable income for the year. When you do find the right home, you can withdraw your principal — and any additional money it’s earned — completely tax-free, effectively helping you buy a lot more. And if you don’t end up buying a home at all, you can always roll your FHSA contributions into an RRSP without penalty. We have more information on FHSAs here. And if you’re still on the fence about the right move for you, you can always get in touch with an advisor. Ben Reeves Chief Investment Officer Saving for your first home? Wealthsimple can help. Open an FHSA with no minimum balance, and you could be picking drapes before you know it. Get started Your opinion matters I’ve been sending these updates more frequently lately, and I’d love to know if you’re finding them useful. Yes, useful Could be better Not for me Wealthsimple, 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Privacy Policy Unsubscribe Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. Self-directed investing is offered by Wealthsimple Investments Inc. (WSII). WSII is a member of the Canadian Investment Regulatory Organization (CIRO). Customer accounts held at WSII are protected by Canadian Investor Protection Fund (CIPF) within specified limits in the event WSII becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF. © 2024 Wealthsimple Technologies Inc.