Toronto house prices may be climbing, but rents are plunging. And they have been since the start of COVID.
Does that make it more financially sensible to rent or buy? Below we investigate.
At $1,967, Toronto rentals have now fallen below the $2,000 threshold for the first time in several quarters, having started the year at almost $2,300.
That’s a 14.9% nosedive from 12 months ago, according to rentals.ca, making Toronto’s rental market the worst-performing major marker in the country.
"It's crazy. We've never seen anything like it,” Paul Danison of Rentals.ca told CTV News Toronto. “The stock market refers to this as a black swan event, where you can't predict it. A once-in-a-lifetime kind of thing."
Meanwhile, home prices in Toronto (and much of the country) are still rocketing higher.
“We doubt that this recent sizzling strength can persist amid some of the building headwinds…” wrote BMO chief economist Douglas Porter. “The underlying economic conditions simply do not support such a piping hot market over a sustained period.”
Despite steep prices, historically low interest rates have made some housing more affordable. The carrying costs of a one-bedroom condo, for example, look something like this:
Rent (Toronto one-bedroom)
Insured purchase (with minimum down)
Conventional purchase (20% down)
*Mortgage rates based on the lowest rates currently available in Ontario for the respective mortgage types. Property tax estimate calculated using the City of Toronto’s Property Tax Calculator. Amortization is 25 years (insured) and 30 years (uninsured). Opportunity cost of down payment assumes a 2% annual return on funds that could have been invested instead of deposited on a home purchase.
If you can’t scrounge up the needed down payment and want to live in downtown Toronto, the answer is easy, rent.
Even if you have the minimum to put down, renting costs the least in terms of mandatory monthly payments. But there are two more things to consider:
1) the equity you’ll build through mortgage payments
2) future price appreciation potential
End result: While renting has the undisputed advantage in terms of monthly cash flow, buying builds you a bigger net worth. That is, assuming prices don’t plunge—and fail to rebound before you sell.