Real estate prices in Canada continue to rise, and between fluctuating interest rates and pricing differences between markets, it’s increasingly difficult to plan your finances and housing options. But when you’re struggling with the rent vs buy decision, there’s more to consider than your out-of-pocket costs.
What’s Cheaper: Rent vs Buy in Canada
In most Canadian cities, renting is less expensive than buying. Average rents are currently $1,922 for a 1-bedroom and $2,319 for 2 bedrooms. The average mortgage payment is between $3,500 and $5,000, based on current home prices and interest rates.
Based on these figures alone, renters save between $1,400 and $3,400 every month compared to buying, making renting much cheaper. However, this is an average; there is a great deal of variability between markets.
Pros and Cons of Buying vs Renting a House
Making the right rent vs buy decision comes down to a lot more than costs.
Advantages of Buying
Key advantages of buying include:
- Equity building: With every mortgage payment, you build ownership in an asset that will almost certainly appreciate over time.
- Control over your space: You can renovate, decorate, or even rent your home out.
- Cost predictability: If you have a fixed-rate mortgage, you know what your payments are going to be. Renters have less control over their housing affordability.
- Tax benefits: Homeowners can take advantage of tax benefits, including the lack of capital gains tax when they sell.
- Pride of ownership: There’s nothing quite like coming home to a house that you own.
Disadvantages of Buying
The cons of buying include:
- High initial investment, including a large down payment and closing costs.
- Loss of mobility: you will need to commit to staying in your home for at least 5 years.
- Repair and maintenance costs: you may have to make major repairs or replacements to everything from appliances to the HVAC and plumbing systems.
Advantages of Renting
Renting also has advantages, including:
- Lower upfront costs: Your only upfront costs will be a security deposit and/or first-and-last.
- Greater flexibility: When you rent vs buy, you can move when your lease is up, with very little notice.
- No maintenance responsibilities: Other than cleaning your own space, you don’t have to worry about repairing or replacing anything. This means less work and no surprise maintenance expenses.
- Investment opportunities: What you don’t spend on mortgage payments, you can invest in other assets.
Disadvantages of Renting
The main downsides of renting include:
- Less control: When you rent, you can’t make decisions like making renovations or changing the appliances. You could also be evicted from your rental through no fault of your own, and your rent could increase with every lease renewal.
- No equity or credit score advantages: Unless you are disciplined about investing, you will not build the kind of equity you can with home ownership. In addition, your rent payments don’t count toward your credit score unless you can pay them by credit card.
Location and the Rent vs Buy Debate
Where you choose to live has a big impact on whether you should rent vs buy in Canada.
Rent vs Buy Cost Gaps
Some markets currently have a housing equilibrium, where the cost of renting vs buying a house is remarkably similar. For example, in Winnipeg, the gap between owning and renting is only $38 on average. You can find similarly small gaps in Regina, Saint John, Edmonton, and Saskatoon.
In other markets, the gap is much larger. The Toronto rent vs buy decision, for example, can hinge largely on the difference between the cost of buying and renting. Surrey and Vancouver are similar.
Regional Housing Prices
Despite the high cost of home buying, there are still urban centres in Canada where home ownership can be affordable. New Brunswick and Quebec are the least expensive provinces to buy in the country. However, there are vibrant urban centres all over Canada where home ownership is still well within reach, including Quebec City, Winnipeg, and Halifax.
Key Trends in the Rent vs Buy Decision
Trends to keep an eye on when deciding to rent versus buy in Canada include:
Interest rates
Changes to interest rates primarily affect the affordability of buying. As rates come down from 2023 highs, more people should be able to afford home ownership.
Supply and Demand
Demand continues to outpace supply in major markets, but reductions in immigration targets should bring about more balance. This affects different centres differentially, so watch for predictions from key sources such as Statistics Canada, CMHC, the economics departments of major banks, provincial housing corporations, and large real estate firms such as REMAX.
Using a Rent vs Buy Calculator for Canada
When using online calculators, assemble the best information you can find about these figures:
For buying:
- Down payment (5% to 20% of the home price).
- Current mortgage rates.
- Homeowners insurance ($1,000 to $2,500 annually).
- Property taxes in your area or municipality.
- Insurance and maintenance (budget 1% to 3% of the home’s value annually).
- HOA Fees or condo fees, if any.
For renting:
- Projected monthly rent.
- Rent increases (2% to 3% annually).
- Renters insurance ($200 to $500 annually).
- HOA or condo fees, if applicable.
- Parking fees, if any.
Making the Rent Vs Buy Decision
Even with a rent vs buy calculator, the decision can be difficult. Here are some questions you can ask yourself to get the ball rolling:
Am I Likely to Move Within the Next Three Years?
Think about your job, your relationship status, and your lifestyle preferences. Do they indicate that you can stay in the same place, or that you will need to or want to move?
Do I Want to Invest My Down Payment Money?
If you already have money saved for a down payment, you can invest it elsewhere if you decide to rent. Review this decision with a financial planner who can give you insights into the return you can expect if you invest that money instead of using it for a down payment.
Do I Have a Steady Income and Emergency Savings?
Both of these are advisable if you plan to buy. If you’re not sure, choose renting for the immediate future.
How Important Are Stability and Control to Me?
Stability and control are major factors in the rent vs buy decision. Sometimes this comes down to personal preferences and your tolerance for change, but these factors are also important.
What’s the Gap between Renting and Buying?
Look into the rent versus buy gap in your area. If there’s a premium on buying, think more carefully about your decision.
Is It Cheaper to Rent Vs Buy?
There’s no one correct answer to this question. It’s a personal calculation based on your finances, stability, willingness to commit, investment goals, and the area you live in.
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