Housing prices in most of Ontario have surged over the last decade while wages remain stagnant. This reality makes it difficult for some millennials to decide whether to rent or buy a place. In previous generations, it was a badge of honour to own a home, but that mentality is shifting. More and more millennials are renting or living at home longer and there are many financial benefits to each situation. Today, Paper & Coin explores renting vs. buying and the shifting housing market for millennials.
Start by walking through the following checklist to gather all of the relevant information you’ll need to make this important decision.
- Which city and province will you live in?
- How much is the median home price in this city?
- How long do you plan to stay in this living space?
- What does the future hold? (i.e. partner, children, career, pets etc.)
- What are the mortgage rates at the moment?
- What is your monthly income?
- How much money do you have saved?
Once you have answers to these questions, you can be better prepared to decide whether or not to rent or buy. In addition to the above question, there are three other key metrics to help with the decision. Let’s look at them a little more closely:
Two of the key elements that distinguish renters vs. buyers are the down payment and closing costs.
In Ontario, new homeowners needs to have at least a 5% down payment on houses under $500,000. That means, if you’re looking to buy a house for $499,999, you’d need to have at least $24,999.95 saved up for the down payment.
Then, a buyer also needs to pay lawyer fees, a home inspection fee (optional), installation fees and other closing costs. All in all, a single new homeowner needs to save a good chunk of change to start the home buying process. If this is not an option at the moment, renting may be the way to go.
Alternatively, a renter avoids all of the closing costs and the down payment amount as well as ongoing maintenance and repair fees. While many of the other expenses are the same for the renter and buyer, upfront fees and ongoing expenses are higher for homeowners so if the renter is saving the difference, they may come out ahead financially in the long run.
Rent and home prices vary in each city. This affects property values, taxes, and your lifestyle. For renters, especially those who’ve been in a place for a long time, monthly rent may be cheaper than a monthly mortgage payment. If property values in an area increase, the homeowner’s property taxes also reflect the increase. However, the renter’s may not see a huge increase in rent because by law, the rent increase guideline is 1.8% for increases between January 1 and December 31, 2019. Unless there are condo fees involved, a renter usually pays less per month than a homeowner so they can save more in theory.
Another big consideration when deciding whether to buy or rent is the length of time you plan on living in the space. A new grad looking for work in different cities may not want to settle in one place so renting may be a better option. A young family may envision their life in the same home and neighbourhood for years to come. It’s important to consider school district, amenities, transportation, and other metrics you value if you’re planning on settling down as a homeowner.