The decrease in the homeownership rate announced last week by Statistics Canada will certainly be seen as bad news.
Are Quebecers turning away from this path to enrichment?
Real estate has certainly proven profitable over the past two decades, and the question now is whether an acquisition made in 2022 or 2023 can harbor such good potential.
I have a doubt.
Falling values, rising costs
Already, under the best of circumstances, owners tend to overestimate their profits. In their yield calculations, they often overlook the costs of ownership: taxes, transfer duties, insurance bills, maintenance and repair costs, mortgage interest, sales commissions , not including the (variable) renovation and landscaping costs.
Now, according to most analysts, real estate prices are set to fall, which can already be seen in places. Once they have approached the limit of our means, home values cannot soar indefinitely.
Meanwhile, the costs of ownership are not decreasing, on the contrary. The assessment roll in Montreal will explode by 35%, we learned recently. If municipal taxes throughout Quebec more or less follow inflation, the increase promises to be steep. The rise in mortgage interest is already straining the budgets of many households. Prices for labor and materials do not deviate from the general trend.
If you’re mourning the drop in homeownership rates, save yourself a few tears, because as things stand, we won’t see a turnaround tomorrow morning.
Rental also goes up
The other option, renting, is also increasingly expensive, but established tenants remain less affected.
I heard between the branches that a new comparative tool was being developed in order to evaluate which of the two options, rental or ownership, was the most advantageous from a financial point of view.
The developers have been good enough to compile scenarios for me, but they don’t want me to divulge their business at this time. You will be informed when the comparator will be public.
Here are the parameters used (I know, it’s still debatable): I compared a purchase at $500,000 or a rental at $2,000 per month. In both cases, it’s (very) expensive, yet it reflects the price of a condo not so central as that in the metropolis. The tenant takes less money out of his pocket over the years, but in the end he does not own any real estate assets. He invests the difference, and in our scenario, his investments were determined to generate 5% per year, after fees.
Other assumptions included a property appreciation rate roughly in line with inflation at 2.5% over the long term, and a mortgage rate of 3.75%. Results: renting remains preferable for several years, then ownership becomes advantageous. We tested with different assumptions that we felt were realistic, and in most cases neither option stood out significantly.
Do you see the pogne?
The variables are many, and the most profitable choice will be determined in part by luck, because we do not know the future and we have no control over the parameters (apart from savings and the approach to tenant’s investment).
We know, however, that real estate is currently at its most unaffordable point, that financing costs are rising, that inflation remains high and that real estate prices are on a downward slope.
If you’ve been living in the same accommodation for a few years, it meets your needs (even a little tight) and the rent remains reasonable, hang in there for a while, it will be your best financial choice.