Dale Jackson

Personal Finance Columnist, Payback Time

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ANALYSIS: Whatever happened to that real estate bubble Canadian housing bubble pundits have been warning about since the 2008 financial collapse?

The latest data shows strong price increases across the country and double-digit year-over-year returns in the hottest markets like Vancouver and Toronto.

That’s great if you own a home – not so great if you’ve been waiting on the sidelines waiting for a post-bubble bargain.

If there’s ever a lesson for the average investor it’s to leave market timing to the pros.

That being said, Canadians piling money into their tax free savings accounts while waiting for the right moment to put a down payment on a house can view their decisions in a clearer light.

Here are the pros and cons of investing in a house versus a TFSA:

As an investment house prices in Canada have always risen over the long-term. Sure, there have been dips and spikes, but according to the Canada Mortgage and Housing Corporation the average house price across the country has increased by 5.4 percent each year over a 30-year moving average.

That’s not to say there’s no risk in investing in a home. You are exposing your assets to one sector in a tiny geographic area. Things that happen in your neighbourhood beyond your control could cause huge deviations from the norm.

Contributions to a TFSA can be invested in just about anything – stocks, bonds, funds, sectors, geographic regions and even real estate. With the total contribution limit at $46,500 and expected to grow in future years, the TFSA can be well diversified to limit risk and maximize opportunity.

One big problem with the TFSA is you can’t live in it. Owning a house gives the investor the added benefit of not having to pay for a place to live.

When it comes to taxation, a house and a TFSA are amazingly similar. Provided the house is a principal residence, both are exempt from the capital gains tax. That means any increases in their values are not taxed.

When it comes to income they differ. If a homeowner derives income rental it is taxed (minus deductions). Income is never taxed in a TFSA.