The 5 Long-term Implications of Renting vs. Owning
Trying to figure out if you should continue to rent or buy a home instead? Well show you what the long-term implications of renting vs. owning are so you can make a better-informed decision for your budget and lifestyle.
Renting Isnt Always Better For Your Budget
Unless you can find a landlord who will keep your rental rate at the same price year to year, in the long term, you will end up spending more than someone with a mortgage. Why? Because you can get a fixed rate mortgage that locks you into a particular rate over time. With renting, most cities allow landlords to raise their rental rates every year based on the rent increase guidelines. Some areas even allow owners of newer buildings and condos to increase rent as they please. So one year you could be paying $1500 and the next $1800. Unless your rent is well below the average mortgage, buying is a better option.
Home Ownership Forces You To Save
Putting money into your mortgage each month forces you to save for your future instead of just spending it on material things. Unless youre putting away money into investments that will yield a significant return when renting, you will have less at the end of the day when compared to an owner whose property, equity and value, appreciates over time while the mortgage decreases.
Owning Presents Secondary Income Options
Most landlords prohibit renting or subletting units without their approval. That means your dream of renting out your rental on Airbnb to make some extra money may be squashed. However, if you own your home, you can easily rent out any room in your house or even a basement apartment to make extra income.
Renting Offers Less Security
Renters always risk being evicted if the market rises quickly and the landlord wants to make more income, or if they suddenly decide to sell the home. When you own your home, you have complete security as long as you pay the mortgage.
Interest Rate Rises Could Prevent You From Buying
Theres a reason why many investors have moved fast to get into the rising Canadian markets. As interest rates rise it can be more difficult to qualify at higher interest rates and stress tests required. All you need is 5% saved plus closing costs to get you started into the housing market. Buying a home is not only finding a place to live but an investment in your personal wealth. Buying when rates are low helps you build equity faster.
If at any time you can afford to get into the market, you should always consider buying over renting.
If youre not sure if buying or renting is best for you, talk to one of ourexperts at the Mortgage Advisors.Well help you understand your options and whats best for you.
Almost no annual growth for national HPI
The national HPI has grown at a below-inflation rate of 0.5% over the last 12 months, the smallest gain since November 2009. Moreover, the fact that monthly gains are reported for May and June does not mean that the market recently turned the corner. These two months typically register the strongest growth rates in a year. Indeed, the two latest rises were among the weakest in history for months of May and June. If seasonally adjusted, the national HPI would been down in both months this year. However, the weakness is not regionally broad-based. The national HPI was dragged down by 12-month home price declines in Western Canada metropolitan areas (Vancouver, Calgary, Edmonton and Winnipeg) and a tiny increase in Victoria. In Central Canada and in the East, home price growth ranges from decent to strong (left chart). This is consistent with the state of home resale markets. For example, the Vancouver market turned favorable to buyers at the end of last year, while the Toronto market remained balanced and Montreal’s market has never been this tight since 2005. That being said, a rebound in home sales recently occurred in Canada which was also felt in the largest Western metropolitan areas. This should help limit home-price deflation in these areas.
The Teranet–National Bank Composite National House Price Index increased 0.8% in June, a second gain in a row after an eight-month string without a rise.
On a monthly basis, the index rose in 8 of the 11 markets covered: Winnipeg (0.1%), Quebec City (0.3%), Montreal (0.8%), Toronto (1.3%), Halifax (1.5%), Hamilton (+1.6%), Victoria (+2.1%) and Ottawa-Gatineau (+2.2%). The index was down in Calgary (-0.1%) and Vancouver (-0.3%), and flat in Edmonton.
From June 2018 to June 2019, the Composite index rose 0.5%, the smallest 12-month gain in ten years. The HPI declined in Vancouver (-4.9%), Calgary (-3.8%), Edmonton (-2.6%) and Winnipeg (-0.4%). It was up in Victoria (0.3%), Quebec City (1.5%), Halifax (2.7%), Toronto (2.8%), Hamilton (4.8%), Montreal (5.4%) and Ottawa-Gatineau (6.3%).
Source: National Bank Financial Markets; Marc Pinsonneault
NORTHERN STAR (FOR NOW...)
In contrast to the US, Canadian growth is accelerating sharply going into the second quarter, following a solid gain in domestic demand to start the year.
Fast, and accelerating, population growth, and remarkably strong employment growth are providing a solid underpinning to consumer spending and the housing market.
Positive export data suggest that the ongoing strength in domestic demand will be buttressed by net exports in the second quarter, and possibly beyond.
Canadian inflation is at the Bank of Canadas target, in sharp contrast to the US, where it has moved away from the Feds objective. This gives the BoC room to keep rates on hold if inflation remains on target.
Downside risks remain important and are all linked to US-centric developments, with worries about US trade policy ongoing despite the pause with China.
Recent Canadian developments stand in sharp contrast to events in much of the rest of the world. Whereas US growth is clearly decelerating, Canadian growth is on an upswing, with recent indicators pointing to a very sharp rebound from a somewhat sluggish start to the year. Canadians appear to be, for the time being, largely insulated from the broader malaise facing the global economy as consumer and business confidence has improved sharply in recent quarters, owing to strong sales and job creation. While there are a number of factors suggesting that the growth rebound observed will persist through 2020, there is a risk that a divergence between Canadian and US outcomes may not last.
Source: Scotiabank Economics