Buy or rent a home: Which is better financially?
For generations, Canadians have been asking themselves this important question: ‘Is it better to buy a home or rent?’ On the one hand, owning comes with more responsibility and higher monthly expenses, but offers more stability and a long-term investment. On the other hand, the money spent on renting will never be recuperated, however, it can offer some flexibility if you’re not sure how long you will live in one place.
According to a recent Royal LePage-sponsored study by economist Will Dunning, it is more financially beneficial to purchase a home than to rent in Canada, more than nine times out of ten. The study uses price data for 278 scenarios (broken out by city and housing type) across the country and assumes the owner is able to provide a 20% down payment. In 91% of scenarios, the monthly cost of owning a home is less than renting an equivalent dwelling, when considering the net ownership costs (total cost of ownership minus the portion of mortgage payment that goes toward principal). This is called the ‘ownership advantage’.
“While Canadians do want their homes to appreciate, potential homebuyers will find it reassuring that significant price appreciation is not necessary for ownership to be financially worthwhile,” said Karen Yolevski, chief operating officer, Royal LePage Real Estate Services Ltd. “Historically, home ownership has been very profitable for Canadians, many of whom have factored their real estate investments into their retirement planning. Owning a home is widely viewed as a means to save money and build equity.”
While home prices are expected to continue rising, the study found that even with a 10% decline in home prices, approximately half of the homeowners studied would still see a positive rate of return on investment, while the other half would break even or see a modest loss as an investment.
“For many people, buying a home – especially the first – is a landmark event and one of the most challenging decisions we’ll make in our lives,” said Will Dunning, president, Will Dunning Inc. “It is a decision that is usually based on a lot of hard work. This research tests a belief that is held by a lot of Canadians, that owning is better financially than renting. And, it finds that this belief is very often correct.”
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