Whether you’re a renter or a homeowner, rising inflation has impacted housing costs across Canada. Fortunately, borrowing costs are trending down. Some 5-year fixed mortgage rates remain under 5% and inflation is hovering just under 3%, edging closer to the Bank of Canada’s 2% target.
This content was originally published by Zoocasa. View original content and infographics here.
Given these positive shifts, some renters may be considering a transition to homeownership, especially as we head into summer, a time when many leases are reaching their end. One way to determine if it is more favourable to buy or rent in a certain location is to calculate the price-to-rent ratio, which is calculated by dividing the median home price by the median annual rent. Though the price-to-rent ratio doesn’t take into account the overall affordability of an area, it can be helpful in determining if specific property types are fairly valued compared to rental prices.
A high price-to-rent ratio of 21 or more suggests that it is more expensive to buy a home than to rent, while a lower price-to-rent ratio of under 16 suggests that it is less expensive to buy a home rather than to rent. A moderate price-to-rent ratio between 16-21 suggests that it is likely more favourable to rent rather than buy, but it will depend on individual financial circumstances.
To guide renters, buyers, and investors in selecting where to purchase or lease their next property, Zoocasa calculated the price-to-rent ratio in 21 cities across Canada for detached homes and condos. Median 2-bedroom rental prices were sourced from Zumper’s latest rental report and median detached and condo prices were sourced from individual real estate boards including the Toronto Regional Real Estate Board, Greater Vancouver Realtors, and the Victoria Real Estate Board.
Favourable Condo Buying Conditions Prevail in Several Cities
If you’d like to make your homeownership dreams come true without breaking the bank, a condo may be the best property type to make that happen. In 10 out of 18 cities analyzed, the price-to-rent ratio for condos is under 16, indicating that it is better to buy a condo than rent a 2-bedroom apartment in these cities.
In many of these cities, such as Edmonton, Quebec, and Ottawa, median 2-bedroom rental prices have increased by more than 10% year-over-year according to Zumper. With soaring rental costs, it may make financial sense for those in low price-to-rent ratio cities to consider investing in a condo.
Edmonton has the lowest price-to-rent ratio for condos of the cities we analyzed at just 9.7. And with an affordable median condo price of $185,000, it is markedly less expensive to buy a condo than to rent. Calgary and Winnipeg follow as having the next lowest price-to-rent ratios for condos, at 10.8 and 11 respectively.
Surprisingly, it’s not only cities in the Prairies that have low price-to-rent ratios for condos. Vancouver, Kitchener-Waterloo, and London also have price-to-rent ratios for condos under 16, indicating rental prices here are high compared to homeownership costs. Notably, Vancouver has the highest median rent for 2-bedroom apartments at $3,790, while the median condo price is $725,000.
For Detached Homes, Buy in Halifax
Halifax-Dartmouth is the only city on our list that had favourable buying conditions for a detached home. With a price-to-rent ratio of 12.9, Halifax-Dartmouth presents favourable conditions to buy a detached home rather than rent a 2-bedroom apartment. The median rent for 2-bedroom apartments has increased year-over-year by 15.6% in Halifax, a rate higher than in Toronto, Vancouver, and Calgary. The median 2-bedroom rental price in Halifax is also on the higher end of the spectrum, at $2,600, surpassing that of Ottawa, Oshawa, and Montreal.
All other cities analyzed have price-to-rent ratios for detached homes above 16, with the vast majority far above 21. Burnaby and Vancouver have the highest price-to-rent ratios for detached homes at 59 and 43.8 – indicating it is much more expensive to buy a detached home here than rent a 2-bedroom apartment.
Cities with more moderate price-to-rent ratios for detached homes, such as Winnipeg, Quebec, and Regina, all have ratios under 21. This indicates that the financial disparity between buying and renting is far less extreme there compared to cities like Toronto and Victoria, where price-to-rent ratios are near 40.
High Price-To-Rent Ratio Cities Still Offer Growth Potential
Even in cities with a high price-to-rent ratio, it still may be financially beneficial to purchase a home rather than rent one. This is because the price-to-rent ratio doesn’t factor in the amount of equity you can build or additional expenses renters have to pay like utilities and maintenance fees. The potential for price appreciation, especially in high-priced cities like Vancouver and Toronto – which have a high demand from buyers – may outweigh the benefits of lower rental prices.
For instance, in a recent Zoocasa report analyzing the amount of equity Toronto condo buyers built in five years, the majority of GTA cities saw the average condo price increase by at least 40%. In Markham, Oshawa, and Ajax that translated to more than $200,000 in equity gains over five years.