Iva Poshnjari, BNN Bloomberg
Published Wednesday, February 2, 2022 10:57AM EST
Last Updated Wednesday, February 2, 2022 10:57AM EST
Across the country, housing markets continue to soar beyond the reach of many. For most Canadians, the price of buying a home is completely unaffordable. For others, the large debt incurred from a mortgage is no longer justifiable.
Some potential buyers are walking away from the housing market and finding new investment strategies to grow what would have been a down payment. They are choosing to focus on stocks, art and alternative investments to appreciate their wealth.
Trevor Scott, president at the hedge fund Tidefall Capital, is well aware of the uncertainties that the stock market can bring, but still chooses to invest in it instead of purchasing a home in Canada.
“The advantage of Canadian stocks today is their high free cash flow yields relative to interest rates. This is the opposite of real estate which has record low rental yields, making renting attractive,” Scott said.
Scott pointed to investment opportunities that can be found in index funds that track the TSX, which is comprised mainly of financials and natural resources — both of which are positioned to do well during inflationary times, he noted.
While price spikes might boost many stocks found within the TSX, it should be noted that deflation and recession also go hand-in-hand, along with a drop in equities.
Sky-high prices for living in Canada gave Scott another reason to favour stocks over real estate. And then there’s the risk of rising interest rates, he said.
While the Bank of Canada did hold interest rates steady at January’s meeting, Governor Tiff Macklem made it clear that interest rates are coming.
“If rates increase, a lot of these mortgages on million-dollar homes would be difficult to carry,” Scott added.
He’s not the only one who feels this way.
Colby Mintram, a partner at Volt Strategic Partners, also jumped into the stock market after he decided it would be more advantageous than buying a home.
“I’m not paying $1 million to own a one-bedroom apartment,” he said.
Mintram justifies renting versus owning a home in this market through the healthy returns he receives from a mixture of U.S. equities, dividend stocks, alongside put and call options.
“I’m able to make more money investing in stocks than I would have if I sunk all that cash into a mortgage,” he explained.
Market intel is a lot more accessible now than it was 30 years ago, which informs Mintram on how to make money, he said.