For many working in Toronto’s downtown core, finding a great place to live – one that allows access to the city’s best entertainment and dining – is a top priority. But it’s also a pricey one; rents in downtown Toronto are among the most expensive in the country. For example, living near a prime location like St. Andrew subway station will set you back around $2,000 per month for a one-bedroom unit.
Shelling out thousands each month for rent – and gaining zero equity in the process – can be a strong argument for purchasing a home, as mortgage payments contribute to a growing investment. But owning a home isn’t the right move for every Torontonian; it’s important to understand how such an investment can impact your affordability and lifestyle.
Here’s what you should consider when deciding between buying and renting Toronto real estate.
1. It’s Getting Tougher to Buy in the City
That Toronto real estate is wildly expensive isn’t news; prices in the GTA have steadily climbed over the past few years, and the September numbers are no exception. According to the Toronto Real Estate Board (TREB), it costs 20.4% more to buy a home in the GTA this year than last, with an average price of $755,755.
Keep in mind that’s the average from all home types – detached houses specifically are fetching over $1.2 million on average within the city. And, even if you have the cash to spend, finding the perfect home can be a fiercely competitive experience. TREB reports over 1,000 fewer new listings hit the city market in September, and sales have dipped due to lack of supply.
“We continued to see strong demand for ownership housing up against a short supply of listings in the Greater Toronto Area in September,” stated Larry Cerqua, TREB president. “The sustained lack of inventory in many neighbourhoods across the GTA continued to underpin high rates of price growth for all home types.”
The numbers show those who are managing to buy houses increasingly need to move to the 905 to do so – according to TREB, only 1,098 were sold within the 416, compared to 3,610 in the ‘burbs.
2. You Might Afford Less Than You Could Before
On October 3rd, the Federal Department of Finance announced new rules that will target mortgage qualification in Canada. As of October 17, anyone who pays less than 20% on their home purchase will need to pass a mortgage “stress test”. To qualify, their finances must be able to service a mortgage priced at a 4.64% interest rate, rather than the steeply discounted mortgages currently available on the market. Previously, only those applying for a variable rate, or a fixed rate with a term of less than five years were subjected to the test.
This change is expected to have a dramatic impact on the housing market. Genworth, Canada’s largest private mortgage insurer, stated up to a third of its clients would have trouble qualifying under the new rules, while other experts say it could cut housing affordability by up to 20%. Millennial home buyers – who are most likely to be buying homes with smaller down payments – will be most impacted by the change. The bottom line is you may now qualify for a smaller mortgage than you would have before, which could limit your options.
3. You May Sacrifice Location and Lifestyle
For many downtown dwellers, the ability to walk to work – and a plethora of nearby restaurants, shops and pubs – is a great perk. That often goes out the window when moving to a more affordable location. Commuting to and from a suburb will cost more time and money; whether you choose to drive your own vehicle or take transit, you’ll need to adjust your budget.
Drivers will find themselves paying more for gas, insurance and maintenance, while transit users must set aside $150 – $400 per month depending on whether they take the TTC or GO. And then there’s time spent, whether in bumper-to-bumper rush hour traffic, or on a train to a far-flung city. You count on losing between 2 – 4 hours of your personal time, daily – equivalent to nearly half of an extra work week!
4. You’ll Need to Commit Your Cash and Time
One of the great perks of renting is your landlord is responsible if something goes wrong – but when you own a home, you’re on the hook for every expense, from monthly utilities to emergency repairs. Owning a detached home will require time spent on maintenance – unless you outsource, you’re the one who rakes the leaves, shovels the driveway, and clears the eavestroughs.
While living in a condo can mean these responsibilities are deferred to your condo board, you’ll still need to pay your fees each month, contribute to the reserve fund, and occasionally need to pay extra should there be a shortfall.
Plus, don’t forget every homeowner’s favourite bill: Property taxes!
Is Homeownership Right for You?
Whether you decide to invest in the real estate market, or continue renting, it’s important to calculate your living expenses and budget. According to the Canada Mortgage and Housing Corporation, you shouldn’t spend more than 39% of your income on housing, whether you’re paying rent or servicing a mortgage. Factor in all travel, maintenance, and utility costs when determining what’s right for your budget.
Writer: Penelope Graham
Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier, and more successfully.
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