Blessed by the Potato

There were some power outages in London today, accompanied by strange noises (Wayfare said it sounded like dinosaurs attacking). Traffic lights were out at a number of intersections across the north and west ends of the city, which caused some pretty big traffic slowdowns. I’ve got to say I wasn’t very impressed with the situation: it took hours and hours before the London police sent someone to direct traffic at the major intersections, and there were a lot of people gunning it through the unregulated intersections and generally driving like dicks.

Well, the weather’s been quite blustery here today, and that lead to a rough night of sleep for me. Every time I woke up with a jolt to something banging outside I’d panic and think someone was breaking into the house. Finally at 5 am I just got up and started my day. It’s kind of sad how getting broken into can make one paranoid. Oddly enough, it wasn’t our gate banging and thumping out there (it usually is, it’s quite noisy if it gets unlatched), so I don’t know what was so loud. I haven’t slept well in over a week now :(

Over the holidays, the check engine light on my car came on. I remember getting all freaked out and pulling over the first time that lit up on me, but a few years ago it started going off every few months due to a sticky solenoid valve of some sort, so I’ve become a little more liassez-faire about it. When I’m in London, I usually take the car in to Westgate Honda for service: they’ve been a pretty stand-up dealership for me, with repair rates that are fairly competitive with independent shops (they charge more for labour, but some services are flat fee, and they’re very good about explaining things to me and giving me written quotes for big things). If I had something else that needed to be done, such as an oil change, then they’d pull the code off the OBDII for the engine light for me for free. Not this time — they dinged me for $90 just to read the code. Ouch.

While in the past that light has meant something happened in the car but its not really a repair issue (a cylinder pinging, or a valve getting temporarily stuck), this time it indicated that the oxygen sensor in my exhaust system has failed, which is over $300 to repair. D’oh. They also pointed out that my radiator is in rough shape. I knew that already, it’s leaking about 1 L of coolant per year. That’s such a slow drip out of the system that I’m not really worried about it, and it still keeps the engine cool, but it must be getting bad if they noticed that on a quick visual inspection. Another $375 repair. While I don’t like driving around without the oxygen sensor working properly, I think I’m going to defer both repairs until the spring (and probably defer the radiator until it becomes a bigger problem), just to see what the rest of the winter brings. I don’t like having my car in anything less than perfect mechanical condition, but it’s just been such a money pit this last year or so…

Oh, I think I found the source of the noise that woke me up:

I’m pretty committed to renting for at the very least the next 3 years. I’ve done a fair bit of reading over the past few days to help convince me that it’s the right thing for me to do (confirmation bias? you betcha!). For example, Millionaire Mommy Next Door’s blog. There’s a lot of “conventional wisdom” out there about buying is clearly superior in every way, with arguments about “wasting money” on rent when that money could be building equity in a house, etc. Looking into it, things are (as things generally are) more complicated, and the decision can depend greatly on how the real estate market is doing relative to the renting market and your assumptions about saving discipline, the performance of the stock market vs housing market, and budgets for things like repairs.

I found the discussion of when it might/might not make sense to buy a house interesting. One rule of thumb involved a house value of a certain multiple of rent for the same unit. Under 150X rent, buy (12.5 years worth of rent); over 200X, rent (16.6 years worth of rent). That seems like a pretty small difference, but I plugged it in with our house. We rent at $1400/mo, so 150X that would be $210000. 200X that would be $280000. Now, I don’t have any experience to have acquired any kind of real estate sense or gut feeling (beyond surfing MLS and reading blogs), but to me, buying this place for $200k sounds reasonable. Wayfare recently guesstimated that this house in this neighbourhood would probably go for $300k, maybe a bit more, and that seemed crazy to me. So perhaps that is a good rule of thumb. It also makes me wonder where the numbers come from, so I did some quick playing around with a mortgage calculator. For the figures I have here, the monthly payments on a 25-year 7% mortgage are quite close to the rent payments when the house is 150X the price of rent — which readily explains why at that point buying would make a lot of sense. In that case you really would be building equity for not much more cost, and renting would be “wasting” money. Much higher, and you have a lot of extra money going into servicing the interest on that giant principal, money which might be better off in the stock market.

Here’s the rent-vs-buy calculator to play around with some numbers. It’s not quite as simple as some people would like, and the decision of whether it is better to rent or buy will depend on a lot of factors (inflation, savings rate, property tax rate, rent of an equivalent place, the performance of the real estate market vs the stock market, etc). Sometimes, buying is better, sometimes, renting is better. Sometimes renting for a bit is better and then buying once a big deposit is available… though options like that get harder to model in a simple calculator :)

Some things to keep in mind that might not be present in conventional wisdom are issues such as opportunity cost of having your money “sit” in your house: since historically (again, the current red-hot real estate market aside) housing prices have barely beat inflation (so houses are a poor investment) while stocks have done a fair bit better over the long term, you’re giving up a potential whack load of income/capital gains from having your money invested. Likewise, even if a house’s value goes up over the course of a few years, there is a harsh fee to sell it (generally 6% I believe), so if you have to sell within a few years for whatever reason, it can be much more painful. That might lead someone to skip a “starter house” and go straight to one they think they’ll need in 3-6 years — but then that reasoning causes one to carry the costs of a larger home than necessary for a few years. Buying a house tends to then make the house the largest asset on the familial balance sheet by a huge margin, which is kind of bad from a diversification point of view.

Interestingly, some of that reading has also made me wonder if it’s the right thing to continue doing, forever (or at least until there is a significant correction in the market). There are a lot of things about home ownership that are appealing to me (and, I think, to Wayfare), quite aside from the discussion of finances:

• The freedom to do whatever you want to a house. Paint it, upgrade the furnace, get stained glass windows, get a drooly dog, run network cable through the walls, soundproof it, get a custom kitchen, and long-term improvements/investments that a landlord might not make like efficient appliances, solar panels, relandscaping, extensions…
• The idea of owning property that no one can take from you. Of being in a community for the long-haul (though renters can get this as well).
• Having essentially the pick of virtually any neighbourhood, any house. There are a lot of condos and apartments to choose from as a renter, but finding a nice house in a nice area is tougher (I think there are 4 houses that have renters in them within a 10-block radius of my parents’, versus maybe 40 homes for sale in the last year).
• Never ever having an inspection on short notice (though half the time my old landlords dropped off a notice they’d be coming by they never did — they mostly just dropped them in everyone’s mailboxes, but really only wanted to check up on the problem tenants; we can’t pay our current landlord to come over).

Of course, renting also has its perks:

• No risk from repair costs.
• The tenant board will largely keep rent increases in check, but property taxes don’t necessarily have that protection.
• No risk from a change in real estate fortunes.
• Often the landlord will take care of chores (or hire someone to do them) such as mowing the lawn and washing the exterior windows.
• Easier to move if needed (job change, extra kids, difficulties with neighbours, etc).
• Many telemarketers go away when you say the magic words “oh, I’m just renting”.

[Ok, some of those were financial, but they were about risk rather than the relative benefit/financial freedom/opportunity cost discussed with the calculators]

I didn’t mention the benefit of “forced savings” that comes from having a house and building equity with a mortgage. It can be a lot easier to save when the money has to go into the mortgage… But that’s not really a savings plan, since using that equity is quite hard, and current real estate market trends aside, the money won’t really “work for you” and is critically linked to a single asset. A better savings plan is actually saving to a diversified portfolio…

An extreme example of the rent vs. buy decision: I was surfing MLS trying to find examples of comparable homes to see how much rent was vs. buying. I lucked out and found one house that was offered for either rent or sale, which makes the judgment of whether one house is equivalent to another or not very easy. It also serves as an interesting example because I know the partial history of this house — it’s the one right next door to the one I grew up in! The house is offered for sale at $549k, and for rent at $1650/mo. That’s a sale price of 333X the rental price. What makes this comparison extreme is that the house really isn’t being sold for the house, but more for the land it’s on and the potential there. The house itself was the largest one on my block 20 years ago (3 bedrooms and a finished basement compared to 2+den for most of the rest of the houses), but after the family with the two girls moved out in ~1985, a long series of tenants moved through. This house needed significant renovations back in the 80’s, and from the look of the knocked-over fence between the houses in the pictures, still does. Anyhow, this example sort of shows how important estimating all the factors can be. With a cheap mortgage assumed, the Toronto rate for property tax, and no other fees (except sales commission), the results can be swung either way by the assumed cost of upkeep/repairs and by the spread between the stock market and the housing market. 3% or more in favour of the stock market (what has historically been true for all but the last 4 years or so) and it makes sense to rent and invest… a narrower gap between them and buying looks better and better, though that also depends on the assumed upkeep (maintenance, insurance, etc). That actually surprised me a little; with such an overpriced house I figured it would take an insane comparison (like the housing market going up 9% a year to 6% for the stock market) to make buying lucrative. Of course, with a house that would need work, buying is the better non-financial decision :)

The housing market is generally assumed to be over-valued at the moment, and there are a large number of articles and websites debating that. Of course, some of them have been saying that for years (I know I can’t believe it’s gone up so much so fast). I think generally these arguments are true: first-time buyers are being priced out of the housing market, and it’s only through fancy lending practices that people can buy a house at all now. Any more increases, and too few people will be able to buy in at all, and it will start to turn around (or at least flatten out until inflation in other areas, such as income, can catch up). The arguments from fundamentals and long-term historical trends is largely true, but some markets have special factors. Demand is a big one of them: Toronto and Ft. McMurray have grown so much in recent years that part of the real estate boom there is just due to demand (rather than speculation or fancy lending). While I still think there’s a turn-around coming for those markets (esp. Ft. McMurray if the oil companies stop the massive increases in hiring, which would stop the immigration there, and if they ever get a supply of rental housing), I don’t think it’ll turn around all the way to the trendline: some part of the increase is genuinely due to higher demand. That high demand is part of what prompted the massive numbers of tiny, ittybitty condos and townhouses: land is simply getting scarce in the GTA (at least until GO and the TTC improve access and capacity in the 905).

Another interesting rule I found: “your monthly housing costs should not exceed 32% of your gross monthly household income. Housing costs include monthly mortgage payments, taxes and heating expenses. If applicable, this sum should also include half of monthly condominium fees.” Apparently that’s not a rule of thumb, but a guideline for how much of a mortgage a bank can give you. At first I thought that was quite low, until I realized that I was still thinking like a student. 4 years ago, 74% of my income went to rent. Even still, with housing prices the way they are, that could become a barrier to some people.

Note that the rent vs buy calculator will take a number of things into account, but if you’re really seriously considering the decision you might want to draw up a spreadsheet so you can see what happens with more complex scenarios. For instance, the calculator only had a dollar field for property tax, but in Toronto at least property tax is a percent of your house’s appraised value, and they’ll hit you with increases every so often — and even more may be coming just from the budget shortfalls over the years. Modeling an increase in property tax cost didn’t seem to be an option (though rents increased at the rate of inflation), but might be something to consider if the alternate scenarios were similar. Likewise, you might want to model some kind of “lifestyle expense creep” as a gradual loss of savings discipline: your first year of choosing to rent, you may bank all the money you would have saved by not buying, but by year two or three you may have lost some discipline, and bought a big screen TV instead… Though the calculator can roughly handle this by putting in an inflation rate that’s higher than what you actually expect (so that your “rent” will go up year over year).

I swear I’ve ranted about the mad proliferation of power adaptors, power bricks, AC-DC transformers or whatever you want to call them before, but I can’t find it in my archives. My search function is not quite as helpful as I would have hoped.

Anyhow, this was a pretty good Potatomas for me, with lots of toys to haul in: a Nintendo DS, some Wii games, and a new camera to replace the one that was stolen. The camera looks pretty keen: a Canon SD850 8-megapixel unit that’s quite small and sleek. So far I only have two complaints about it. The first is that the flash is way too bright, and that it could really use a half-flash setting, or even a low, med, high flash like my old, old 3-MP camera had. The second is that it doesn’t take AA batteries, so I have to remember to charge it when going places, and also to take the proprietary charger. Likewise, the DS has its own charging dongle. My old Sony camera also had its charger, but it used rechargeable AA-batteries, so when I inevitably ran out of juice in the middle of a trip or a party, I could just run into a convenience store or bum some batteries from somewhere else and I was good to go.

My cell phone (motorola Razr V3c) has a mini-USB slot to charge, which I find quite handy. I don’t need to pack a charger, just my laptop. Of course, that stupid thing needs a specific driver for my laptop in order for it to charge properly, so it was of no help when my phone died over at a friend’s place last night, and I had no way of charging it.

Another device I have is useless for the moment as I’ve lost its charging brick, and am trying to figure out how to get another. At Wayfare’s house, her mom has a bag of power bricks and no one knows what they’re for, so they’re afraid to throw them out just yet (in a sign of inspired organisation, they’re labelled with the date they were found so that they can eventually be declared orphan bricks and thrown out/recycled).

I think about now I would kill for someone (ISO? ANSI? IEEE? The government?) to come out with a couple (even a couple dozen) standardized power brick/battery charger configurations. A few DC voltages, a few different max current/wattage ratings, a few different plug geometries, and we’d be off to the races. Sure, we might have a whole alphabet of charger types A through Z, but even narrowing it down just that much would help if it ever becomes necessary to replace one. At work we have “universal” power adapters that are giant and have selectors for 3, 6, 9, 12, or 15 V and 4 or 5 different plugs, and while we use those for a number of different pieces of lab equipment/prototypes, I don’t think there’s a single laptop that they could run. The desktop replacement ones need too much power, and the smaller Dells have a weird square 3-pronged plug.

Plus, my understanding is that there is a certain amount of inefficiency inherent to these transformer power bricks. People simply aren’t going to pay the price for a more efficient version for every device they have; in some cases, the power bricks might end up costing more than what they power! However, if there were only so many power brick types needed in a home, then a person could spring for a more efficient one, and then use it to power a couple of different devices…

For some portable devices, like my camera and DS, it does make sense that the AC-DC converter is in a separate power brick, even if the non-standard adapters drive me crazy. Other devices, such as my PS2 and computer have the power supply internal, and then have a fairly standard plug on the back. I don’t know why that’s not the case for the Wii and the TV — it’s not like they’re portable, and they don’t have batteries so they can’t be used separately from the power supply. While it would be more weight to put on my lap, I would even prefer to have the power brick internal on my laptop, since I can never travel far without it anyway (note that I don’t think this should be true of most laptops: mine is already heavy and hot enough that it’s never on my lap anyway, and the battery life is so short that I never carry it anywhere without the power brick).

We saw I Am Legend tonight, and we’re not thrilled. First Markham Place has really comfy chairs (much better than the blue chairs of the formerly Famous Players theatres, especially for short people like Wayfare), but the non-stadium seating meant it was kind of annoying when a tall guy sat in front of us. We also had a very chatty couple behind us, and the film quality was really awful: there were a half-dozen black vertical lines through the whole thing. I don’t know how the film got that scratched up, that systematically (every reel?!), but I would have left and complained if it weren’t for the fact that so much of the movie was dark, so it was harder to see that.

The movie is only very loosely based on the book. In fact, they have the same concept, and the main character has the same name, but not the same plots at all. No more battling with depression and creeping alcoholism, now Neville simply tries to hold on to his sanity as he faces being the last man on earth. No longer a hapless joe schmo victim trying to piece things together, he’s now a top-notch army scientist who knew about the virus since the beginning. And the big part of the end of the novella? Gone entirely, though oddly enough there were a number of weird touches (what we thought were elements of foreshadowing) through the movie that made us think they were following the original plot, only to see them go wildly off into a completely different direction entirely.

While the camera work got quite dizzying at points, the movie is pretty decent and worth a watch. If you’ve read the novella and were expecting to see a film adaptation of it, however, don’t bother: this is a completely different story they’re telling.