To rent or buy? Here's what to consider, according to a Canadian CPA

Aug 3 2022, 2:59 pm

Let’s face it, many Canadians are feeling the heat of the current housing market situation. Following another interest rate hike, home ownership is down, rental costs are up and, for those in BC and Ontario — the two most expensive provinces to live — the tumultuous market isn’t going away anytime soon.

While home ownership has long been a life goal for many Canadians, the Chartered Professional Accountants of Canada (CPA Canada) Housing Headache Study finds that half of Canadians who do not currently own a home believe it is unlikely that they will ever be able to purchase one. The study also dug into the reasons why.

Canadians and their homeownership concerns

to rent or buy?

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The Housing Headache Study — which polled 2,000 Canadians from coast-to-coast — revealed that, in BC, 93% of non-homeowners stated housing availability in their desired area is the greatest challenge to owning their own home. And, in Ontario, 92% of non-homeowners consider potential interest rates their greatest challenge to getting into the real estate market.

The study also found that Canada-wide, 89% of respondents who do not own a home are concerned about the risk of interest rate increases, 83% of non-homeowners consider housing availability as the main challenge for entering the housing market, over 80% say affordability is a challenge, and 69% say their income stability is the main roadblock when trying to buy a home.

In BC and Ontario, 31% of parents with adult children living at home report that their kids are still living with them because housing is too expensive.

But not all hope is lost, according to CPA Canada Financial Literacy Volunteer Ideh Fesharaki.

“If you look at both Ontario and BC’s real estate markets from a glass-half-full perspective, it may not be so bleak,” she tells Daily Hive.

“Although the results of CPA Canada’s Housing Headache survey seem to confirm that the prospects of homeownership for non-owners remains far from reach for many — a worsening reality in an inflationary environment with tightening monetary policies and risings interest rates — disruptive and emerging technologies that promise to change the landscape of home ownership, lending, financing, and credit all have the potential to offer real solutions to the housing crisis facing many Canadians,” says Fesharaki.

“Just as Airbnb has disrupted hospitality, and to an extent the housing market, and Uber has changed the way we think about ride-sharing, I believe there will be very creative disruptive technologies and solutions around homeownership,” she says. 

Nevertheless, Canadians should assess the pros and cons of both homeownership and renting, keeping in mind that owning a home isn’t the only definition of success. 

According to Fesharaki, depending on your financial goals, it might make more sense to rent for some time to grow savings for retirement and to improve purchasing power for potential future investments. 

What’s more, whether you opt to buy or rent, help isn’t far as organizations such as CPA Canada offer many free tips and resources to help Canadians improve their understanding of money and feel empowered by their financial decisions.

To rent or buy?

to rent or buy?

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So, here comes the age-old question — to rent or to buy?

“If homeownership is something that’s important to you, then it’s prudent to understand the state of the economy and the impact of factors such as inflation and interest rates on real estate and the overall economy,” explains Fesharaki. “Planning early for the future and considering alternative locations that may be more affordable could offer practical options and entry points.”

Fesharaki also recommends assessing if buying a home will “leave you too financially stretched and stressed that it negatively impacts your quality of life.” She says, “When buying a home, think of it as a long-term investment, taking into account current and future income as well as plans for retirement. It is also very important to know your own level of risk tolerance.”

Start by calculating if you can afford to pay for the down payment, monthly mortgage payments, property taxes, land transfer tax, home insurance, maintenance fees, home inspection/status certificate, closing and legal costs while also being able to save some money for unexpected repairs or expenses, plus your retirement.

You can utilize services like CPA Canada’s Money Management worksheet or Financial Wellness Guide to help with calculations and budgeting.

to rent or buy?

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On the flip side, homeownership brings a sense of security and the ability to “benefit from the wealth effect of increasing real estate prices and at times is a hedge against rising inflation,” according to Fesharaki. “And, you’ll be saving a predetermined portion of monthly income for mortgage payments, some of which will be regularly contributed to your home’s equity.”

There’s also a positive emotional impact from owning your own home because you can renovate and arrange the home as you desire.

Now, when it comes to renting, there is more flexibility in location and less cost involved if you want to move in a few years’ time. Additionally, renting enables people to make alternative investments with the money that would have gone into monthly mortgage payments.

Renters also don’t have to foot the bill for unexpected costs such as interest rate increases, sudden repairs and renovations, and tax increases.

Critically assess your financial situation

to rent or buy?

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“I think one of the keys to making the decision on whether to rent or own is to realistically assess one’s financial situation, risk tolerance, current and projected income, accounting for the probability of volatility in earnings (especially for entrepreneurs and small business owners), and ability and discipline to save for unexpected expenses. This is not to deter Canadians from an ambitious purchase, but rather to make sure there is planning, and scenario analysis involved, ideally with the help of experienced advisors and experts,” says Fesharaki.

The Federal Government’s 2022 Budget proposed measures to help Canadians buy and manage their first home through tax benefits such as the new Tax-Free First Home Savings Account that will allow first-time homebuyers to save $8K per year to a maximum of $40K per person towards the purchase of a home — contributions would be tax-deductible (like an RRSP) and withdrawals will be non-taxable (like a TFSA).

The Home Buyers’ Tax Credit will be doubled, allowing first-time homebuyers with a qualifying home to obtain up to $1.5K in tax relief.

A new Multigenerational Home Renovation Tax Credit will be available to families who renovated their homes to add accommodations for a senior or disabled relative to live with them. You can claim 15% of up to $50K of your eligible renovation expenses, meaning you might be able to receive up to $7.5K as a refundable tax credit.

Fesharaki encourages families to consider all their options carefully and to have these conversations openly to make sure everyone is working towards a common goal. Additionally, she recommends speaking to qualified and experienced advisors who can help you and your family make better and more informed decisions to support you beyond your purchase and throughout your homeownership journey.

For more information, visit CPA Canada’s financial literacy website, which offers live sessions, tools, books, and resources to help you make better financial decisions.

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