The great ‘buy vs. rent’ debate.

There’s an article today on canada.com about the affordability gap between buying and renting in Canada.

“A report on real estate trends indicates that steadily rising home prices and the recent upward drift in mortgage rates is tilting the economics of housing back in favour of renting over home ownership.”

The report released by the Scotiabank Group links the price difference between buying and renting to the slowing housing market across Canada.

“Among major urban areas, the buy-over-rent premium in 2005 ranged from just $31 per month in Winnipeg to $1,220 in Vancouver. Nevertheless, in most centres, the affordability gap is widening.”

Relative price trends in recent years have consistently favoured renters over homeowners, the report said. Between 2000 and 2005, renters’ shelter costs increased at an average annual rate of 1.3 per cent. Homeowners’ costs, on the other hand, rose an average 2.7 per cent yearly. Rising home prices have been a major inflationary factor, but homeowners have also faced relatively larger increases in insurance premiums and maintenance costs.”

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WoodenHorse
WoodenHorse
13 years ago

ooops….I think that 26.5 should be 24.5

WoodenHorse
WoodenHorse
13 years ago

vintage said…You get the deal when you buy it, not when you sell it. Couldn't agree more.D_oush: Let's say you bought in 1981 (pre-bust) and I bought in 1982 (post bust). I would have paid roughly half what you did. Think of what you could do with that. I could buy twice the house or have half the monthly payment (the other half could be invested or enjoyed). Nobody here thinks home ownership is a bad idea (this is–at the end of the day–an RE blog), but to buy today would be a very bad idea. On average it would take 26.5 years to break even in real terms if you bought at the peak of that '81 boom…but that doesn't even take into account the opportunity costs of the "extra" money you tried up in that house.

Anonymous
Anonymous
13 years ago

"I don't see how it doesn't matter how much you pay for your house… "who is "you"? mortgage brokers, credit ujion banks, developers, most realtors (except honest few like rireb), parties with vested interest or just oily palms ..

Anonymous
Anonymous
13 years ago

D_oush: Wouldn't it be better to buy a house for $400K when the market is low, pay 25% down and end up with $300K mortgage, which after 25 years is going to grow to nearly $600K in total paid in prinicpal and interest by which time your house is worth, say $1M and you made $400K on your investment, rather than buying the same house for $600K when the market is high, getting a $500K mortgage, paying $1M in total when paid off and ending up barely breaking even?I don't see how it doesn't matter how much you pay for your house… You get the deal when you buy it, not when you sell it.

ReductiMat
ReductiMat
13 years ago

I'm saying its never a bad time to buy as long as you hold it for the long term.There are examples in history where "long term" meant breaking even after twenty-five years.I contend it's nowhere near as cut-and-dry as you make it out to be.

d_oush
d_oush
13 years ago

reductimat, I'm saying its never a bad time to buy as long as you hold it for the long term.dingus, when prices have slowed you could get a good deal before it turns into a sellers market again.

dingus
dingus
13 years ago

d_oush:So when prices are high, it's a good time to buy because you might get a good price?Sounds logical.

ReductiMat
ReductiMat
13 years ago

d_oush said… In the long run prices always go up, even if they go down in the short term.Are you saying there is never a bad time to buy real estate?

Anonymous
Anonymous
13 years ago

"I don't know why these reports consistently fail to take into account obvious costs such as taxes, strata fees (on condos), maintenance costs, and insurance.".. also make allowances for emergency contigencies.An escalator in my friend's highrise twr has broken down beyond repair after 12-13 yrs and it'll costs the owners collectively >$400k to replace it.

d_oush
d_oush
13 years ago

If the rent vs. buy gap has grown to the point where less people are buying it could be the perfect time to buy. You wont have as much competition and you might even get a deal on something. In the long run prices always go up, even if they go down in the short term.

Anonymous
Anonymous
13 years ago

My rent covers 35% of the mortgage/condo fees/taxes.I guess thats what they mean when they say negative cash-flow investing huh? Absolutely insane.

Anonymous
Anonymous
13 years ago

I think they assume the standard 25% down.The report only seems to include mortgage payments vs. rentMaybe this will be the next big thing in rentals? $1400 / mo not including utilities, heat, hotwater, taxes, maintenance, strata fees and insurance. Good luck with that one investors!

bc_cele
bc_cele
13 years ago

Actually, from what I can gleam from the article, the gap is even worse. The report only seems to include mortgage payments vs. rent, which is totally bogus. I don't know why these reports consistently fail to take into account obvious costs such as taxes, strata fees (on condos), maintenance costs, and insurance. I would also like to know what they assume the downpayment and closing costs are.I still remember commercials (not in Vancouver) saying – "Cheaper than rent". Of course after all was said and done you paid a lot more than rent.

dingus
dingus
13 years ago

I figure a mortgage payment on the equivalent of what I rent would be around double, provided you plunked over 100k down. I find this differential truly mystifying. I think people have just plain gone nuts.

ReductiMat
ReductiMat
13 years ago

I currently live in a relatively large two bedroom suite in Yaletown.My rent covers 35% of the mortgage/condo fees/taxes.

Anonymous
Anonymous
13 years ago

How about selling your house to an investor for a great price now with a condition (or perhaps a separate contract) that lets you stay in the same house as a tenant for a long term lease while you pay market rent?Wouldn't this be a clever and very convenient way to save some major cash by slashing your monthly cost by likely a half while avoiding the hassles of finding a new place and moving etc?

johnnycrasher
johnnycrasher
13 years ago

If prices drop by 5% ,i would make money by selling my house and renting.