Buying or renting – which one is better? While this is one of the oldest debates in real estate, there’s not one answer that is right for everyone. These two types of living setups have some major differences that will appeal to some people much more than others. Just because you have a friend or sibling who recently bought a house, for instance, that doesn’t mean it’s right for you. On the other hand, you shouldn’t necessarily choose to rent just because someone close to you did. Here are some signs renting is your best move, and some signals that buying is worth considering.
Times it’s best to rent…
Interest rates are tough to handle
Since the beginning of the year, we have seen the overnight lending rate increase from 0.25 per cent to 3.75 per cent. There’s still one more announcement this year from the Bank of Canada, where we might see yet another rate increase. Interest rates have risen quickly and steeply, which has posed problems for many would-be buyers. With the cost of borrowing so much higher today than it was one year ago, it’s a challenge for people to handle these higher rates when trying to buy a home. Many people have put their buying plans on hold in favour of renting, until rate hikes stop or decrease. If you think today’s interest rates are going to be a problem for you to deal with, renting might be the better choice right now. The rental market is also skyrocketing due to increased demand, but the fact remains that renting doesn’t involve the possibility or uncertainty of interest rate increases.
You aren’t ready to settle down
You might have the finances to purchase a home, but do you have the preparedness? Buying a home requires the commitment to settle in one location, if not permanently, then at least for a long time. It takes a lot of time, effort, and money to purchase a home and pay a mortgage. If you decide you want to leave and move to another city two years after buying, you’ll be left paying a hefty penalty to get out of your mortgage and not enough home equity to make up for it. It’s very expensive to buy a home and try to leave it shortly after. Apart from the money, it’s also a waste of your own energy and efforts. Renting can be a lot of work too, but there are far fewer strings attached. If you don’t know where you want to live, or how big of a home you want, you are likely better off renting until you can work that out.
You don’t want to commit to maintenance
Finally, owning a home is a lot of work. You’re responsible for keeping it clean and safe, for ensuring everything is in working order, and for maintaining any yard space you own. Many homeowners sometimes feel like it’s a full time job to care for their homes. If your heating breaks down, you’re the one who has to arrange for a repair. When the grass gets too long, you’re the one who needs to break out the mower. There’s nothing wrong with deciding you aren’t ready for that kind of commitment to a home yet. While renting has certain responsibilities as well, like cleaning and maintaining overall livability, you’re on the hook for far less. Repairs, inspections, and bigger maintenance jobs are your landlord’s responsibility to arrange. This saves you a lot of time and money, because for the most part, you won’t have to pay for these jobs.
Times it’s best to buy…
You want to take advantage of more supply
We’re in the middle of changing market conditions. You likely remember that one year ago, supply was almost non-existent in many markets. This was largely due to record-low interest rates, which prompted many buyers to rush into the market, pushing demand way past supply. Now, with rate hikes, demand has fallen, but there are still people selling their homes and contributing to supply. This is a good time as a buyer to have several options for potential homes. You can afford to take more time, and negotiate more with sellers. You are less likely to have to settle for a home you don’t love as much just so you can break into the market.
Housing prices are falling
Since demand has dropped, housing prices are following the same pattern. In Barrie, year-over-year prices show a decrease. One of the biggest barriers to homeownership one year ago was the cost of homes, as prices swelled far past what is normally expected. Now that prices are deflating a bit, many buyers might find they are able to make a down payment on a home. Of course, higher interest rates will increase costs, but actual housing prices are becoming more attainable. If you are confident in your abilities to qualify for a mortgage with today’s rates, you may be in a good place to buy.
You’re ready to settle and build home equity
Lastly, a good reason to choose buying over renting is you are ready to settle in one home and start building equity. The longer you live in a house you own, the more equity you can build, meaning you will own a valuable asset over time. When you rent, you will never build equity on a property you don’t own. If you know where you want to live long-term, and you’re ready to commit to a purchase, it will help you gain an asset with value.
When you have to make the decision between buying or renting, there are definitely a lot of factors to consider. It’s important to take into account your finances, your lifestyle, and your preparedness to commit to homeownership. If you decide buying is the best path for you, contact a mortgage broker to get the process started. We can help you work out a reasonable budget and get your pre-qualification rolling. This way, you can enter the market with confidence.
If you have any questions about your mortgage, get in touch with me!