Understanding Bond Price Dynamics

Is renting just “throwing money away,” or could it be the smarter financial choice? In this episode, we dive deep into one of the most debated topics in personal finance: renting versus owning a home. In our conversation, we discuss the nuances of renting versus owning, the hidden costs of buying a home, and the importance of saving discipline. Tuning in, you’ll discover how emotional biases may inflate real estate prices and how societal pressures influence housing decisions. Then, we shift our focus to a listener's question about interest rates and bonds. Dan explains how bond prices and yields work inversely and delves into the concept of bond duration. He also breaks down how long and short-term bonds react to interest rate changes and why the Bank of Canada’s influence on bond markets may not always be straightforward. Join us as we investigate the pros and cons of renting versus buying and how to leverage bonds effectively in a dynamic interest rate environment!

Key Points From This Episode:

(0:03:54) Exploring the common belief that owning a home is universally better.

(0:09:13) How buying and renting in Canada compares to other countries.

(0:10:58) Some of the inherent risks of renting versus buying in Canada.

(0:17:01) Methods to test how housing performed as an asset with examples.

(0:21:04) The importance of analyzing real data, and Ben presents his findings. 

(0:31:03) How housing costs influence the financial outcome of renting versus owning.

(0:35:51) Ways that mortgages, housing costs, and forced savings affect wealth accumulation.

(0:47:34) Unpacking how maintenance costs serve as a proportion of the building value.

(0:52:45) Renting versus buying takeaways and the associated psychological factors.

(1:00:37) Dan’s take on whether long-term bonds can take advantage of falling interest rates.

(1:10:55) Insight into how various market-driven factors influence the long-term return on bonds.

(1:13:30) Aftershow: final takeaways, catch-up, news, and more.

Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Mark McGrath on LinkedIn — https://www.linkedin.com/in/markmcgrathcfp/ Mark McGrath on X — https://x.com/MarkMcGrathCFP

Dan Bortolotti on LinkedIn — https://www.linkedin.com/in/dan-bortolotti-8a482310

Canadian Couch Potato — https://canadiancouchpotato.com/

Future Proof Conference — https://futureproofhq.com/

CMHC (Canada Mortgage and Housing Corporation) Rental Market Survey Data — https://www.cmhc-schl.gc.ca/professionals/housing-markets-data-and-research/housing-data/data-tables/rental-market/rental-market-report-data-tables

Episode 196: Sebastien Betermier — https://rationalreminder.ca/podcast/196

Episode 308: Dan Bortolotti — https://rationalreminder.ca/podcast/308

Statistics Canada — https://www.statcan.gc.ca/

Bank of Canada — https://www.bankofcanada.ca/

National Council of Real Estate Investment Fiduciaries (NCREIF) — https://www.ncreif.org/

REALTOR.ca — https://www.realtor.ca/

Kevin Prins — https://www.bmoetfs.ca/specialists/kevin-prins

BMO Canadian ETF — https://www.bmoetfs.ca/

Financial Planning Association of Canada — https://www.fpassociation.ca/

Papers From Today’s Episode: 

‘Assessing High House Prices: Bubbles, Fundamentals and Misperceptions’ — https://www.aeaweb.org/articles?id=10.1257/089533005775196769&ref=josephnoelwalker.com

‘Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise?’ — https://doi.org/10.1111/j.1540-6229.2011.00321.x

‘Perception of House Price Risk and Homeownership’ — https://www.nber.org/papers/w25090

‘Owner-Occupied Housing as a Hedge Against Rent Risk’ — https://doi.org/10.1093/qje/120.2.763

‘To Rent or Buy? A 30-Year Perspective’ — https://www.financialplanningassociation.org/article/journal/MAY18-rent-or-buy-30-year-perspective

‘Are Renters Being Left Behind?: Homeownership and Wealth Accumulation in Canadian Cities’ — http://hdl.handle.net/2429/50413

‘The Life-Cycle Effects of House Price Changes’ — https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2005/wp05-7.pdf

‘Depreciation of Housing Capital, Maintenance, and House Price Inflation: Estimates From a Repeat Sales Model’ — https://doi.org/10.1016/j.jue.2006.07.007

‘Characteristics of Depreciation in Commercial and Multifamily Property: An Investment Perspective’ — https://doi.org/10.1111/1540-6229.12156

‘Homeownership and Psychological Resources Among Older Adults: Do Gender and Mortgage Status Moderate Homeownership Effects?’ — https://doi.org/10.1177/08982643211029174