Renting vs buying a house, what’s the right choice? This is one of the biggest financial decisions facing Canadians, and it’s widely debated. While you can perform a calculation to see which decision makes the most sense financially, it’s not purely a money decision.
For many Canadians, owning a home is the ultimate dream, even if it comes at a higher cost than renting. Others may prefer the flexibility and reduced responsibility associated with renting. Some Canadians can’t afford to purchase a home and have to rent.
No matter where you land on the homeownership spectrum, there are benefits and challenges to consider. Let’s take a look at the renting vs. buying debate.
Renting vs. Buying a House
If it feels like homeownership is more out of reach today than it was in the past, that’s because it is. Let’s face it, money is tight for everything these days.
In 1970 the median home price was $17,000 before tax, and the median family income was $18,447. This means, the total cost of a home was comparable to a family’s yearly income.
In 2024, the average home price is $696,166. The average household income before taxes is $106,300. This means, the total cost of a home today is nearly six and a half times more than the average family income.
More millennials are renting than previous generations. Is this because they want to, or because they can’t afford a home? For many, the real estate market has become prohibitive, at least without help from the bank of mom and dad. But the dream of homeownership is still alive.
According to a recent Royal LePage study conducted by Hill & Knowlton, 84% of young millennial and Generation Z adults believe homeownership is a worthwhile investment, and a priority for many. More than half of Gen Z and millennials (58%) say they plan to buy a home within the next five years, according to a recent poll by Scotiabank.
When to Rent vs. Buy
In the debate of rent vs. buy, there really isn’t a right answer. Ultimately it comes down to what’s right for you and what you can afford. It also depends on if you plan to stay somewhere long term, or if you plan to move around. If you’re currently trying to decide what to do, consider the following questions.
Do you value flexibility?
Do you want to be able to pick up and move to a new city or country? Are you okay with moving if your landlord decides to sell? If you value mobility and aren’t bothered by having to move, you might be happy to rent.
If you’re ready to start a family, put down roots, and stay in the same spot for the foreseeable future, homeownership might be the way to go.
Are you prepared to maintain a home?
Many people aren’t prepared for the amount of work that comes with homeownership. There’s yard maintenance, repairs, chimney and gutter cleaning, fixing leaky appliances, and draining sediment from your water heater. This is in addition to regular household chores, like cleaning.
If you aren’t ready to take on this level of responsibility, and expense, you might opt for a rental.
What can you afford?
One of the biggest deciding factors is still your budget. You need to figure out what you can afford without becoming house-poor. Remember, buying a house is more than just mortgage payments, there’s the down payment, property taxes, home insurance, utilities, fees, and repairs. A lot to think about.
It’s also important to review your household debt to see if you can realistically take on a mortgage. The Canadian Mortgage and Housing Corporation (CMHC) has a free online mortgage calculator to help you determine what you can afford.
The Pros and Cons of Renting vs. Buying a House
Here’s a summary of the main benefits and challenges associated with renting vs. buying a house.
Pros of renting a home
- When your lease is up, you can move to a new neighbourhood, city, or country.
- Limited responsibility. If your furnace breaks, it’s up to your landlord to replace it.
- Lower upfront costs. You don’t have to worry about a downpayment, mortgage, insurance, property taxes, or maintenance costs.
- Try before you buy. By renting, you can test out a neighbourhood to see if it’s what you’re looking for before purchasing a home in the future.
Cons of renting a home
- Lack of permanence. If your landlord decides to sell their home, you may have to move too.
- Rent increases. The cost of rent is subject to change if your landlord decides to raise the price.
- No equity. When you rent, there’s no opportunity to build home equity.
Pros of buying a home
- You can personalize it, make it your own, raise your family, host your friends, build a garden, landscape your yard, and you don’t have to ask anyone for permission.
- Build equity. Buying a home allows you to build equity, which you can borrow against to help meet other financial needs.
- Investment potential. If the housing market goes up and you sell at a good time, there’s potential for your home to act as an investment.
- Price stability. If you lock in a fixed-rate mortgage, your monthly mortgage payments will stay consistent throughout the term.
Cons of buying a home
- Cost of homeownership. Mortgage payments aren’t the only cost to consider when purchasing a home. There are property tax, home insurance, utilities, and fees and repairs.
- Potential liability. If the housing prices fall, there’s the potential to lose money.
- Large amount of work. Maintaining a home and yard takes time and effort. There’s a neverending to-do list from mowing the lawn to fixing a pipe or regrouting your shower.
Can’t Afford Your Home? Speak to a Licensed Insolvency Trustee
When deciding if you should rent or buy a home in Canada, there isn’t a right answer. What’s right for you and your family will depend on what you value, and what you can afford. If you’ve purchased a house and can no longer make your monthly mortgage payments speak to a Licensed Insolvency Trustee (LIT) about your options. You don’t have to navigate mortgage debt alone, we’re here to help. For a free, no-obligation consultation, give us a call at 1-888-371-8900 or complete our online contact form.
