Residential Market Commentary - Buying beats renting
It is a widely held belief among Canadians that buying a home is better than renting, and a new report by Royal LePage supports that idea.
The study found that, in 91% of the cases, where a buyer has a 20% down payment, home ownership is more financially beneficial, over the long term, than renting.
“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,” said Will Dunning, chief economist with Mortgage Professionals Canada and president of Will Dunning Inc.
Dunning examined 278 scenarios involving different locations and housing types across Canada. In 253 of those cases, the cost of owning was lower than the cost of renting. As of the second quarter of this year, on average, the net home ownership cost was $769 per month less than the cost of renting an equivalent dwelling.
A key factor in the calculations is the concept of “forced savings”. That is, the principal portion of every mortgage payment is not a true cost, but rather a saving, as the principal decreases and equity increases. (Whereas rent is a true, on-going cost.)
However, the benefits of ownership are not entirely dependent on increasing prices and equity. The study found that even with a 10% decline in prices, about half of the homeowners studied would still see a positive rate of return, while the other half would break even or see a modest loss as an investment. If there is no growth in values, ownership would result in a positive rate of return on investment in a majority of cases.