According to a new consumer report from Mortgage Professionals Canada, the soaring cost of rent is making it more cost effective to own a home, now and in the future.
The report, Owning versus Renting a Home in Canada, compares the expected costs of housing for Canadians that rent versus those that own a home. In the 266 scenarios discussed in the report, which were taken from a broad cross-section of regions throughout the country, the current monthly cost of home ownership is actually lower than the cost of renting equivalent housing in the majority of cases, and becomes 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,” said Will Dunning, Mortgage Professionals Canada’s chief economist and author of the report, in a press release. “The costs of owning and renting continue to rise across Canada. However, rents continue to rise over time whereas the largest cost of home ownership – the mortgage payment – typically remains 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 home ownership.”
Although more Canadians are becoming used to the idea that they may never be able to own a home and become lifelong renters, the report suggests that those who do have the opportunity to invest in home ownership will be significantly better off long-term. The study compares the costs of renting five and 10 years in the future.
For example, the report finds that if mortgage rates remain at 3.25 per cent, in 10 years the cost of ownership (on the net basis that takes out principal repayment) will be lower than the cost of renting in almost 98 per cent of cases. On average, the net cost of owning will be $1,295 less than the monthly cost of renting an equivalent residence. If the interest rate increases to 4.25 per cent after 10 years, the cost of ownership is less than the cost of renting in 92 per cent of case studies, with an average saving of $1,014 per month. Even with interest rates rising to 5.25 per cent in 10 years, home ownership will be less expensive than renting in 82 per cent of cases, saving home owners about $726 per month compared to renters.
“Using conservative expectations for rental increases over time, there is a clear financial benefit of owning versus renting,” said 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 home ownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve home ownership. Our collective long-term economic success may be compromised without that support.”
The report notes that in all 266 scenarios, once a mortgage has been fully repaid, the cost of owning a home will be significantly lower than the cost of renting. In 25 years, on average, the cost of owning is projected at $1,549 per month, compared to $4,655 for renting an equivalent residence.
In addition, after reviewing data from Statistics Canada on wealth in the country, the report finds that homeowners are in better shape financially compared to tenants who are similar in age and level of income.
“Everyone wants to save for their future, but rising costs, including rent, are making that more difficult,” added Dunning. “The lower life-time costs of home ownership mean that owners have more ability to save for retirement than do renters. The financial benefits of home ownership go beyond equity accumulation.”