As a realtor in Stoney Creek, Ontario, it’s crucial to help potential buyers weigh the pros and cons of each option to make an informed choice. In this blog, we’ll dive deeper into the differences between leasing and buying a home in Ontario, provide relevant data on market trends, and include a detailed case study highlighting real-world implications for first-time buyers.

The Great Debate – Leasing vs. Buying a Home

For many first-time buyers in Ontario, one of the most significant decisions they’ll face is whether to lease or buy a home. With a dynamic and evolving real estate market, choosing the right path can be a daunting task. This decision is influenced by several factors such as long-term financial goals, lifestyle preferences, market conditions, and future aspirations.

As a realtor in Stoney Creek, Ontario, it’s crucial to help potential buyers weigh the pros and cons of each option to make an informed choice. In this blog, we’ll dive deeper into the differences between leasing and buying a home in Ontario, provide relevant data on market trends, and include a detailed case study highlighting real-world implications for first-time buyers.

Leasing a Home in Ontario: Flexibility and Lower Initial Costs

Leasing is often seen as an appealing option for many people, particularly first-time buyers who are unsure about settling down or those who prioritize flexibility over long-term investment. In Ontario, leasing a home has become increasingly popular, especially with the growing rental market in cities like Toronto, Ottawa, and Hamilton.

Key Trends in the Ontario Rental Market:

• According to the Canada Mortgage and Housing Corporation (CMHC), Ontario’s rental vacancy rate was reported at 1.6% in 2024, which is lower than the national average of 3%. This indicates a high demand for rental properties.
• The Royal LePage House Price Survey shows that average rents in Ontario increased by 3.5% over the past year. Toronto, in particular, has seen rental increases due to the growing population and low housing supply.

Pros of Leasing:

1. Flexibility: Leasing offers the ability to relocate after a short-term commitment, typically one year, making it ideal for first-time buyers who are not yet ready to settle down permanently. This flexibility can be especially useful if you’re unsure about your long-term career or family plans.
2. Lower Initial Costs: Unlike buying, leasing a home does not require a hefty down payment, which for first-time buyers in Ontario, can be up to 20% of the home’s value. Instead, tenants only need to cover the first and last month’s rent.
3. Maintenance-Free Living: For renters, property maintenance is typically handled by the landlord, which can save time and money on repairs, unlike homeowners who are responsible for property upkeep.

Cons of Leasing:

1. No Equity: When you lease, your monthly rent payments help the landlord build wealth, not you. Renters don't benefit from the equity appreciation that comes with owning property.
2. Rent Increases: Although Ontario's rent increase guideline for 2024 is capped at 2.5%, there is still a potential for rents to rise in high-demand areas like Toronto and Stoney Creek.
3. Limited Control: Renters often face restrictions on making changes to the property, whether it’s painting walls, installing new appliances, or renovating.

Buying a Home in Ontario: Building Equity and Long-Term Stability

On the other hand, buying a home is a solid long-term investment, particularly for those who are planning to live in one place for several years. First-time buyers may find that purchasing a home provides stability, the opportunity to build equity, and potential tax advantages that renters do not enjoy.

Current Market Data on Buying in Ontario:

• As of early 2024, Royal LePage reported that Ontario home prices had increased by 7.3% year-over-year, driven by low housing inventory and demand from both local buyers and investors.
• In Ontario, the average home price as of 2024 was $869,000, with notable increases in suburban areas like Stoney Creek, where prices have surged by approximately 4% year-over-year.

Pros of Buying:

1. Building Equity: Every mortgage payment made contributes to building equity in the property, unlike rent payments, which don’t benefit the renter in the long run. Over time, the home value may appreciate, providing first-time buyers with substantial returns when they sell.
2. Stability: Homeownership offers long-term stability, especially for first-time buyers who are ready to settle down. Fixed-rate mortgages allow homeowners to lock in a consistent monthly payment, shielding them from rising rents or market volatility.
3. Tax Benefits: Ontario homeowners can benefit from various tax incentives, including the Ontario Land Transfer Tax rebate for first-time buyers. This can provide significant savings, potentially as much as $4,000 on the land transfer tax.
4. Personalization and Control: Homeowners have the freedom to customize their property according to their preferences—whether it’s renovations, landscaping, or upgrading appliances—without seeking landlord approval.

>Case Study: First-Time Buyer – Renting vs. Buying in Stoney Creek, Ontario

Let’s explore a real-world scenario involving two first-time buyers in Stoney Creek, Ontario:

• Sarah, a First-Time Buyer: Sarah is looking to buy her first home in Stoney Creek. She finds a townhouse priced at $650,000. Sarah puts down a 20% deposit of $130,000 and finances the remaining $520,000 with a 25-year mortgage at a 4% interest rate. Her monthly mortgage payment would be approximately $2,750 (this includes both principal and interest).
• Mark, a Renter: Mark rents a similar townhouse in Stoney Creek for $2,500 per month. He has no intention of buying a home for at least five years, as he anticipates a career move to another city in the future.

 

Financial Breakdown Over Five Years:

 

Sarah’s Mortgage Payments: In the first five years of Sarah’s mortgage, her payments will be divided between principal and interest. After five years, Sarah will have paid approximately $165,000 in total mortgage payments, with about $40,000 going toward her mortgage principal.

• Total payments over 5 years: $165,000
• Amount paid toward principal: $40,000

While Sarah’s initial payments mostly cover interest, she will have built equity of $40,000 in her home by the end of five years.

Mark’s Rent Payments: Mark, on the other hand, rents the same type of property for $2,500 per month, which adds up to $150,000 in rent payments over five years. However, unlike Sarah, Mark doesn’t build any equity through rent payments. After five years, he has no ownership interest in the property.

Property Value Appreciation:

Even though Sarah’s mortgage payments are front-loaded with interest, her property could have appreciated in value over five years. Based on current market trends in Stoney Creek, Ontario, property values have been increasing by around 3% per year (according to Royal LePage). This means Sarah’s $650,000 home could appreciate by approximately $97,000 over five years.

• Estimated increase in home value: $97,000
• Sarah’s total equity at the end of five years: $137,000 (this includes both principals paid off and the increase in home value).

 

Conclusion:

• >Sarah’s Financial Position: After five years, Sarah has paid approximately $165,000 in mortgage payments, but only $40,000 of that goes toward the principal. However, with the increase in the property’s value, her total equity would amount to around $137,000 by the end of five years, thanks to both principal repayment and appreciation.
• Mark’s Financial Position: Mark will have spent $150,000 in rent over the same period with no return on that investment. He will not benefit from any appreciation in property value or build any equity during that time.>

>While Sarah’s monthly payments include both interest and principal, her long-term investment is ultimately more rewarding. For first-time buyers in Ontario, homeownership provides the opportunity to build wealth over time, even though the early years may involve higher interest payments.

Disclaimer:>

The information provided in this blog is based on current market trends and general guidelines. It is important to verify all data independently and consult with a professional advisor before making any investment decisions. The real estate market can fluctuate, and individual financial situations vary. Always seek expert advice tailored to your unique circumstances.