Early in the summer of 2020, I wrote about how the uncertainty of the COVID-19 pandemic had some home buyers reviewing their decision to jump into the housing market. After a quiet spring season, there’s been a resurgence in housing demand in markets across the country, with record-breaking sales noted for June and July. As Canadians return to the housing market, one of the biggest questions for prospective first-time buyers with an impending move remains: Should I continue to rent, or should I take the leap into home ownership?
The answer to that question is, perhaps unsurprisingly, that it depends on your circumstances. The decision to move is often equally a lifestyle and financial decision, and it varies for each one of us based on our needs and preferences. Here are the key considerations to keep in mind as you navigate your own decision to buy or rent, along with some concrete examples on how to approximate and compare your financial costs in each scenario.
1. What’s your time horizon?
As you plan your move, it’s important to ask yourself how long you intend to live in your new home. The time horizon of your stay in that property is one of the key factors that should influence whether you choose to buy or rent.
The general rule is that the longer you plan to live in the home, the more favourable the decision to buy becomes. Real estate is a long-term investment and there are real costs associated with buying and then selling a property in the short run. Although the Canadian real estate market as a whole has experienced a decades-long streak of positive appreciation, the thousands of dollars in transaction costs such as land transfer taxes, moving costs, and real estate professional and legal fees will eat into any appreciation and may not justify the financial investment involved over the short term, even in the most positive market conditions.
If you plan to live in the same home for less than three years, it’s probably better to rent and avoid making what amounts to a speculative investment. If you’re planning to live in the home for at least five years, the decision to buy is likely better. If you anticipate needing to move again within the next three to five years, it might be a good idea to take a look at the broader financial aspects of owning and carrying a home, as they apply to your personal circumstances before moving forward.
But how do you determine how long you’re likely to live in your new home? Your decision should be driven by your lifestyle needs, both today and in the future. For example, will the property you move into be able to accommodate an expansion or contraction of your family? Do you live in a neighbourhood with good schools and, if not, will this be important to you in the future? Do you expect changes to your daily commute?
The goal is to choose a property and location that account for as many factors as possible, so you can limit the number of times you need to move, minimize financial churn associated with moving and maximize your investment return should you choose to buy.
2. Take a closer look at your financial picture
Beyond having a down payment, it’s important that prospective buyers take into account two other financial aspects of home ownership: the monthly carrying costs of owning a home and, as I outlined above, the costs associated with selling that property in the future.