To Buy or Not to Buy – Is that the question?
Apr 22nd, 2014 | By Daniela DeTommaso
The housing market just won’t go away. It’s in the news, it’s in our daily conversations and it’s in our thoughts as we plan our futures. Should I get in now or just keep renting? Of course, there are many elements to consider but first, do the math.
Compare your rent against mortgage principal, interest, taxes, house insurance, increase in utility costs and a reasonable amount for maintenance of your home. Most often, the rent option will be lower in cost. So why doesn’t everyone just rent? Well, given our enduring housing boom, it is clear that home ownership has many attractions, including a few of the thoughts that follow.
When you rent, you don’t have tenure. Once your lease is up, or sooner if you are a month to month tenant, your landlord can decide he or she wants the premises. Or they might decide to sell. You have no control over those decisions and you have to arrange for new shelter, together with all the attendant costs of doing so.
Often, tenants come to the conclusion they need more space. If you are an apartment or condo dweller, there is a limit to what you can find in the market that will give you a significantly larger living area. And for those who rent single family homes, it is simply a smaller market, with less choice available at the specific time you need it. Choice expands when home buying rather than renting becomes an option.
Then there is that pesky ‘pride of ownership’ thing. There is something special about owning your own place and being able to make adjustments over time to suit your taste and your lifestyle – not just when you move in, but all along life’s path as your needs and wants evolve. Just look at the size of the home improvement marketplace and you will see that pride of ownership is a very real force.
We all get it – ownership has many advantages, but there is still that math we talked about earlier. It’s usually cheaper to rent. Now, that is the question – is it?
Ownership does one other thing. It creates a forced-savings vehicle that quietly, but surely, allows an owner to build equity in a significant asset – and not just any asset, but one that usually appreciates significantly. We all have to live somewhere and home ownership allows the benefit of that shelter cost to accrue to us over the long term, rather than to our landlords. An opposing argument says that you could create similar wealth buildup by saving and investing over the years. That is undoubtedly true for those who can generate significant savings; exhibit the discipline to do so; and manage investments with skill. Unfortunately, most folks simply don’t have all those things going in their favour. But the simple fact is most long-term home owners eventually pay off that mortgage and have a source of wealth they wouldn’t have generated otherwise. Renting may be cheaper in the short run, but there is a compelling financial upside to ownership that can’t be denied.
Those who are ready to buy are naturally unnerved by housing prices. No question, they are high. Will they come down – who knows? But the off-setting factor, at least for now, is that money is cheap. Do you feel 3% 5-year mortgages are a powerful incentive and driver of affordability?
Tell us about it.