The affordability of homeownership… Rent or Buy?

After years of seeing countless articles and posts about interest rates, housing affordability issues, mortgage stress tests disqualifying some people from being able to buy, higher personal debt levels, does it still make sense to buy a home?

Yes! There is positive news. You can still buy a home. And you can still qualify for a mortgage.

And renting should scare the life out of you as rents are hitting ridiculous levels.

Here are some numbers for you to consider

Today, a household annual income of $70,000 will qualify you for a $300,000 mortgage. This will cost you between $1,278 and $1,520/month depending on product selection and rates.

Let’s look at Guelph, Ontario. A 1,500-square-foot townhouse will cost you over $2,000/month to rent. Or, you could buy that townhouse for around $458k. And with 20% down, your mortgage will carry for between $1,560 and $1,856/month.

In Ontario, we have a few problems. There is a limit as to how much a landlord can increase the annual rent. This has been between 1% and 2%, on average, during the last 25 years. While this might sound great for renters this has discouraged any purpose-built multi-unit residential rental buildings. Add in a lack of available land for development near major cities and you have a lack of supply coupled with high demand. The major supply of rentals has been private investors buying condos, townhouses and other homes for the purpose of renting.

The result has been predictable: Sky-high record rents for newer builds and lower rents for older properties. But don’t get too comfortable in older properties. Investors have been selling those lower rental income properties with tenants being asked to leave in favour of new homeowners buying to occupy.

And this pattern of high rents doesn’t seem to be improving!

There have been some headline-grabbing incidents with tenants complaining about losing their $1,200/month rental condos (when market rents are over $2,500/month) and not being able to find anything to rent even close to that price range.

Ask yourself this question: Do you want to be in control or controlled? Do you want to rely on a private owner who could choose to sell or even move in, which means you could be legally evicted at any time? Do you want to own something and build your own equity and net worth?

A $300,000 mortgage will be around $210,000 after 10 years of regular minimum payments. By the way, the average Canadian pays their mortgage off in less than 17 years by taking advantage of accelerated and lump-sum payments. A mortgage broker will show you how to do this!

I talk about the affordability of homeownership a lot, because too many people hear doom and gloom in the media and shy away. It’s so important to understand that buying real estate is a steady long-term investment that you can personally enjoy.

Wondering if homeownership is within your reach? Check out this Rent or Buy Analyzer to compare the financial advantage of renting and buying based on your current monthly rent, funds towards your down payment and your desired monthly payment if you purchased a home. Better yet, give me a call to discuss your options.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca