Money123: Investing in AI, housing affordability improving, renters in for a rough patch

Should you buy into the AI hype?

Chipmaker Nvidia has seen its share price soar so far this year as investors bank on the company’s potential to power an artificial intelligence future.

Wealth managers say the fervour around AI has reached the stock market, with the potential to find some “diamonds in the rough” that are set for serious growth.

But some, including WDS Investment Management’s Derek Dedman, also warn that hype around the latest trend has turned out poorly in the past — look no further than the cannabis industry — and there are risks tied to going all-in on AI.

“The best way to look at a bubble is when that expectation gets so outlandish … it’s impossible for reality to meet the expectations. And once that reality sets in, then you see it kind of drop off the other edge,” Dedman says.

Despite the risks, experts say there are responsible and measured ways to get some exposure to AI without risking your long-term investment strategy.

Read more.

Housing affordability jumps in Q1

Here’s a headline you don’t read too often: Houses became more affordable in the first quarter of the year.

That was the finding from the latest National Bank of Canada Housing Affordability Index, which found the first quarter of 2023 marked the biggest improvement in affordability in nearly four years.

Stability in interest rates, rising incomes and a further drop in home prices helped to make housing more affordable for the second consecutive quarter, according to the bank.

But the modest improvement hasn’t been enough to bring affordability back in line with the pre-pandemic era, the National Bank cautioned.

Saving for the average down payment of roughly $50,000 will still take the typical buyer 73 months to build up, compared to the historic average of 40.5 months, per the report.

Read more about where National Bank believes affordability is heading in the quarters to come.

Rental affordability could soon get worse

Even if housing affordability has gotten a bit better, there’s little relief in sight for renters, who have largely seen their monthly payments balloon in recent months.

Part of the dire outlook for renters is tied to their landlords, many of whom are struggling to turn a profit on their properties amid higher interest rates.

A report released Monday from CIBC and Urbanation shows a majority of investors in the Greater Toronto Area were cash flow negative on their units in 2022. That means that after mortgage payments, property taxes and other expenses, most investors were losing money on their properties.

While tenants might have little sympathy for their landlords, experts who spoke to Global News say investors are critical for the rental market’s future.

Shaun Hildebrand says that without investors to purchase pre-build units to add to the rental supply, more and more renters will be competing for a limited number of properties in the years to come.

“The bigger issue that it will have is an increase in rents because there’s going to be a restriction in the amount of supply. And unfortunately, this is going to cause further affordability issues for renters,” he says.

Read more.

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– THE QUESTION –

“If I choose to work for an American company, what will happen to my CPP (Canada Pension Plan) when I retire? For example, if I continue to live in B.C. and choose a work-from-home job with an American company, what will happen to CPP when I retire in Canada?”

— A Money123 reader 

“Your American employer should be paying into the Social Security program in the U.S., so you are probably not contributing more to CPP. You should qualify for a pension with both programs separately.

Both programs have their own formulas based on how much you pay in over how many years. However, Social Security has the Windfall Elimination Period clause, which means they may reduce your Social Security if you earn too much from your CPP. They have an online calculator you can use to estimate your Social Security if you Google “Windfall Elimination Provision (WEP) Online Calculator.”

CPP only looks at your contributions and years in Canada, and is not affected by any other pension. Only Social Security can be reduced if you earn too much from other government pensions and pay into Social Security for less than 30 years.”

– Ed Rempel, fee-for-service planner & tax accountant, Unconventional Wisdom

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