In this time of uncertainty, buying or renting a house is one of the crucial decisions to be taken than ever. We have talked in detail about the pros and cons of buying VS renting in our previous posts. If you are still not sure about which way to swing, this recent study by economist and housing market analyst Will Dunning can help you decide. 

The study found that Homeowners paid $769 less per month than renters in Q2 2021, on average, provided there is a 20% downpayment. It uses price data for 278 scenarios (broken out by city and housing type) across the country to approach the commonly-asked question ‘Is it better to buy or rent?’ from various angles – using historical data, future projections, and viewing homeownership 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.”

In 253 out of 278 cases studied (91%), the net cost of ownership (the total ownership cost minus the saving that occurs through principal repayment) is lower than the cost of renting. In the report, this factor is referred to as the ‘ownership advantage.’ As of the second quarter of this year, on average, the net homeownership cost was $769 per month lesser than the cost of renting an equivalent dwelling. In the 9% of scenarios where renting was more beneficial than buying, cases were concentrated in luxury homes around expensive neighborhood pockets. Moreover, the monthly savings were minimal for this demographic at $245.

Now we know that the market scenario will not remain the same. That is why the study considered various circumstances. It includes a mortgage renewal in five years at an increased interest rate (3.62%, based on the highest interest rate seen during the study period from the fourth quarter of 2014 to the present). Even in that scenario, homeownership remained more affordable than renting in most situations. 

The study calculated how homeownership might perform as an investment, making varying assumptions about how much values might change during the coming ten years. The calculations 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. The other half would break even or see a modest loss as an investment. In the majority of cases, if there is no growth in values, ownership would result in a positive rate of return on investment. Other scenarios in which values rise show increasingly attractive rates of return. 

The analysis includes assumptions about the costs of buying and selling homes (closing costs, lawyer and real estate agent fees, and land transfer taxes) and the crucial ongoing costs incurred by homeowners (utilities, repairs, homeowners’ insurance, and condominium fees, where applicable).

“Although supply has reached historic lows and home price appreciation continues to trend upward, the findings of the report show that owning a home remains financially advantageous for most people. However, all Canadians would benefit from swift and material government action to solve the country’s housing supply crisis,” added Yolevski.