If you live in Toronto or Vancouver, you’re probably well aware of how much it costs to own or even rent a property these days. Between constant media reports detailing the latest over-the-top deal to experts predicting when the bubble will burst, it’s a lot to take in – especially if you’ve never bought a home before.
It’s getting harder and harder to get your foot in the door of a larger space. In both Canadian cities, detached homes are averaging well over $1,000,000 – a figure that climbs every single day. In some cases, bidding wars are resulting in properties going for as much as $500,000 over the asking price. At the same time, Canadian home sales are starting to drop, mainly because of what experts say is a lack of inventory. With sky-high prices and so much demand for property, the entire process can be extremely daunting for prospective homebuyers. So what can you do?
First and foremost, it’s important is to sit down and really think about what you want. We’ve listed the best reasons to buy or rent, and what to keep in mind for either choice.
Top 3 Reasons to Buy:
1. It’s important to have assets – If you’re in your 20’s and 30’s, you’ll want to have some equity and a home is a great investment. In Toronto and Vancouver, your home will likely earn more value per year than you will at your job. When it comes time to sell, you’ll be pocketing a lot of cash to help you purchase your next place.
2. Condominiums are still somewhat affordable – Condo values haven’t been appreciating quite as much as houses these days. If you don’t need four bedrooms, four bathrooms and a sprawling yard, why not consider one? Just like a home, it’s still a great investment and a more affordable option for those who want to live closer to the downtown core.
Tip: Consider buying into an older building. These may have fewer common amenities but this can possibly save you tens of thousands of dollars. Units also tend to be more spacious than in newer developments.
3. Mortgage rates remain low – Chances are, you won’t see rates as low as they currently are for a long time, and you can thank the Bank of Canada for that. The overnight lending rate sits at 0.5%, with some economists predicting we’ll see a further drop later this year. That amounts to more money in your pocket! But those interest rates won’t stay low forever. You can compare fixed and variable mortgage rates right here at Ratesupermarket.ca to see which suits you best.
Top 3 Reasons to Rent:
1. It can ultimately be cheaper – You may have people telling you that renting is simply throwing money away. While it’s true that renting doesn’t earn you any capital, it can actually be a cost-effective way to live in a city like Toronto where recent research shows it’s currently cheaper to rent the average condo than it is to buy.
2. Save, save, save! – If you plan to enter the real estate market eventually but don’t feel like now is the right time, renting will give you more time to save for a down payment. In fact, you could possibly wait out a correction in Toronto and Vancouver’s housing markets. While there’s no indication when – or even if – that may happen in Toronto, some experts say Vancouver is already showing signs of prices heading south.
3. No maintenance, no worries – When you rent, you’re not on the hook for maintenance costs. This means if your dishwasher suddenly conks out, you won’t have to pay for it (provided you didn’t use it for purposes beyond its intended use). This also means you won’t need to pay for any necessary renovations – something that can end up costing thousands of dollars in some older homes.
What 4 Factors Should I Consider?
1. Your budget – Assess your current income and expenditures and see if buying a home in Toronto or Vancouver – whether it be a detached, a semi-detached, condo or townhouse – is something you can afford. Calculate how much you’re making versus how much you’ll be spending on a monthly basis. If buying, you should be able to put away one to two per cent of your income for home maintenance on top of paying the actual mortgage. Don’t forget about all the closing costs as well!
2. Your age – The younger you are, the smarter it is to invest in a property – if you can afford to, of course. As we mentioned earlier, it’s important to build up your assets and a home can certainly help you do that. On the other hand, if you’re close to retirement and you already own a home, this could be a good time to actually sell your property. Consider downsizing if the kids have moved out. You’ll have plenty of cash left over to cover a rental or buy a small condo – and less space to clean!
3. Your timeline – How long do you plan to live in your current home? Roughly, how long do you plan on staying in your next place? It’s a good idea to consider your timeline before deciding if you’d like to rent or buy. Homebuyers only live in their first two homes for about 7 to 10 years – thus why it’s called a “starter home.” Ideally, you should see yourself there for about five years – enough to possibly accrue value if you decide to sell. However, buying should not be a stopgap measure on the way to something else.
4. Your lifestyle – Think realistically about the amount of time you’ll actually spend inside your home. If your residence is your castle, buying a home is a wise investment. If you travel a lot and simply need a place to park your stuff, homeownership doesn’t really make much sense for you. Renting may be more cost effective and convenient.
Buying a home is never an easy decision, especially in stressful markets like Toronto or Vancouver. But the more research you do, the more likely you’ll feel confident in your choice. And remember: it doesn’t matter what your friends and family are doing or what the latest news report suggests – do what’s best for you and your budget!
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