Rising rents is making homeownership the affordable alternative according to a new report.
In a comparison of expected costs by those intending to rent and those who chose to own, Mortgage Professionals Canada’s chief economist Will Dunning concludes that ownership costs less than renting today and is even more cost effective over time.
"The report demonstrates that the money Canadians are spending on monthly rent, if used instead to finance a home, would be a very beneficial investment over time," explained Dunning. "The costs of owning and renting continue to rise across Canada. However, rents continue to rise over time whereas the largest cost of homeownership – the mortgage payment – typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership."
How much could buyers save?
By looking at the comparative costs, the report shows that, if mortgage rates remain at 3.25%, in 10 years the cost of ownership (on the net basis that takes out principal repayment) will be lower than the cost of renting for almost 98% of cases. The saving for owners vs renters would be $1,295.
If rates were to rise to 4.25% after 10 years, the cost of ownership is less than the cost of renting in 92% of case studies, with an average saving of $1,014 per month.
A rate of 5.25% would still make homebuying a lower cost option in 82% of case studies with a monthly saving of $726.
"Using conservative expectations for rental increases over time, there is a clear financial benefit of owning versus renting," commented Paul Taylor, President and CEO of Mortgage Professionals Canada. "While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term. Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership. Our collective long-term economic success may be compromised without that support."