The Economy Starts All Over Again When It Gets Crisp in the Fall

As the leaves turn and a chill enters the air, signalling the onset of fall, the economic landscape seems to be undergoing its own seasonal shift. Long-held beliefs about homeownership and market stability are being questioned, making this an apt moment to reassess where we stand financially and where we're headed.

The Rent v. Buy Debate Goes Mainstream

Traditionally, homeownership was seen as a cornerstone of financial security—a tangible asset that appreciates over time. But in today's climate, with property prices remaining particularly high, many are reevaluating this assumption. Also, for many people, the debate isn't particularly fruitful, as the possibility of home ownership remains out of reach, even with the proposed changes to the Canadian mortgage rules.

That being said, what's notable is how the rent v. buy conversation has become more mainstream over the last year. In the United States, financial advisor Ramit Sethi has been vocal about the merits of renting through his Netflix show "How to Get Rich,", his writing, and social media platforms. The New York Times has also widely reported on the topic, offering a new rent vs. buy calculator and dedicating several podcast episodes to the topic (see December 2023 and September 2024). Most recently, they interviewed families grappling with this very decision, highlighting that it's not just a financial choice but an emotional one as well.

North of the border, the debate is equally vibrant.  Benjamin Felix's recent opinion piece in The Globe and Mail, sparked extensive discussion, amassing over 200 comments. Felix went the extra mile by addressing many of these remarks, underscoring the issue's complexity.

The consensus across these articles is clear: high interest rates, hidden costs of homeownership like maintenance and taxes, and a tight housing supply have diminished the allure of buying. Renting is being rebranded—not as a fallback but as a savvy, flexible financial strategy.

A crucial caveat for Canadians: when utilizing rent vs. buy calculators, ensure they're tailored to Canada. Unlike in the U.S., Canadian homeowners can't deduct mortgage interest from their taxes. Using an American calculator could paint an inaccurately rosy picture of homeownership's financial benefits.

Interest Rate Cuts & Economic Uncertainty

Meanwhile, central banks are cutting interest rates. On September 18, 2024, the U.S. Federal Reserve cut interest rates by 0.5%, resulting in a target interest rate range of 4.75%-5.00%. Earlier in September, the Bank of Canada made a similar decision, cutting interest rates by a further 0.25% to 4.25%.

Although the talking point remains that we're navigating a soft landing, trying to bring down inflationary pressure without adversely affecting the job market or broader economy, the larger interest rate cut has rekindled whispers about a potential recession.

Historically, interest rate cuts can signal many things—or, paradoxically, nothing at all. In the early 2000s, aggressive rate cuts led to a shallow recession, followed by recovery and growth. In 2007-2008, aggressive cuts couldn't prevent the Great Recession, which resulted in the economy contracting significantly and unemployment rising sharply.

Financial markets are, predictably, uncertain. Investors and analysts are parsing every word from central bank officials, seeking clues about future policy directions. Is this the calm before the storm, or just a calm because the storm isn't coming?

Connecting the Dots

So, where does this leave us? The revived rent vs. buy debate suggests a shift in how individuals value financial flexibility over traditional notions of stability. The hesitation to commit to homeownership reflects broader economic anxieties—chief among them, the fear of an impending recession or a housing market correction.

As the air turns crisp and we dig out our favourite sweaters, the economy seems to be embracing change as well. Maybe life—and the economy—does start all over again when it gets crisp in the fall. Or perhaps, like Gatsby, we're forever reaching out, hoping that the next season brings us closer to our own green light.