Canadian real estate has grown by about 2.5% in excess of inflation over the past 30 years. But if we look at long-run data from the U.S., home prices over the past 130 years have risen by less than 0.5% in excess of inflation. Given an inflation rate target of 2% for the Bank of Canada, you may not realize 5% plus real estate price growth over the next 30 years. Canadians have been spoiled over the past generation.
I’m hesitant to use rules of thumb with financial decisions. You should consider all the factors, Karen.
I have a client who has been renting a home in Stouffville for $2,016 per month. The home is worth about $850,000. I have another client who just bought a condo in Toronto for $545,000. Rents in the building are about $2,200 per month, and condo fees are modest due to limited amenities. The Stouffville renter is paying 2.85% of the market value in rent. The Toronto landlord is hoping to get 4.84% of the market value in rent.
One could say that Stouffville, in this case, may be a renter’s market, and Toronto may be more balanced. Looking around the Greater Toronto Area, or elsewhere across the country, I am always amazed to see what the range in rents relative to market values of real estate. Some areas may favour renting over owning from a strictly financial perspective.
I’m biased as a financial planner who builds retirement plans, but I think a comparison of two scenarios—owning versus renting—would help provide some perspective. That’s the only way I know to answer a question like this unequivocally that factors all implications. Whether you do so on your own or with a professional, a thorough analysis could help answer your question, at least from a financial perspective, Karen.
Modelling home ownership versus renting is not an easy, back-of-the-napkin analysis. If you sell, you have selling costs, debt repayment, money to invest and tax implications from how you invest that money.
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If you continue to own, you may have a higher interest rate on your debt at renewal compared to current rates, varying maintenance costs from year to year, and may still need to sell at some point in retirement.