28 Jun 2017

GTA Real Estate: Rent Vs. Buy

Posted by Andrew Dybenko

Summer is here, and the second quarter of 2017 is just about complete! Many are wondering what’s next for the GTA Real Estate market. To bring some perspective back to where things currently stand, I thought it might be a great time to do a new rent vs buy analysis. Before digging into this, let’s do a quick recap of what’s happened to Toronto Real Estate over the last few months to bring us here.

Prices increased substantially in January, February, and again in March, when we were seeing close 30% year/year appreciation. In April, the Ontario Government announced new measures to cool the market causing a rise in new and active listings. This was the most significant shift in market conditions we have seen since 2008.  Providing a more balanced market and one that favours Buyers in some GTA neighbourhoods. Prices have retreated from the highs reached in Q1. The most recent stats for mid June indicate prices are up 6% on year/year basis, but down about 13.5% from March. Keep in mind this is based on the average price for the GTA and may or may not be representative of your specific situation.  

Many Home Buyers who aren’t used to having this much clout are now sitting back and waiting to see what happens next. This article indicates that first-time buyers planning to buy a home in the next year comprise only 40 per cent of anticipated purchases, down from 53 per cent in a November survey. First Time Buyers often drive the market and can have a domino effect on other Buyers/Sellers ability to make a move. While Buyers are taking a pause, in comes moneybags Warren Buffet. Buffet’s most recent investment in Home Capital shows he is confident that a Canadian housing crash is not imminent.  

Investor purchases aside, I thought it would be a good time to step back and take a look at things with a rent vs buy approach. This analysis should help those renting decide if they should be taking advantage of current conditions.

What we found is that whether to rent or buy might not be the right question. Where to rent and where to buy is more telling. The results provide some insight in what areas and housing type are likely to see further price drops, and what segments are more likely to see a more rapid rebound.  


High Park North – 3 Bed 2 Bath Home | Rent – $3,500 | Purchase – $1,000,000

Many Buyers in areas across the city like High Park North are seeing significant discounts from the early spring. Finding a Freehold for $150,000 less than you were paying a few months back has been a reality this June. However, Buyers should be cautious not to overplay their hand. If all things remain the same, waiting too long for a further price drop could backfire, as inventory may begin to tighten again. As Sellers adjust to the new pricing realities less homes are likely to come to market in Toronto’s popular neighbourhoods.

Check out our analysis below to see how renting that Million dollar house in High Park North might end up costing you more in the long run as you factor in equity gained through ownership. Now if you are certain prices are going to drop further or anticipate a large interest rate increase, not Buying is an easy decision. But if you think the market is likely to level off with potential for small gains going forward, a purchase can make sense.  Unless of course you know of a more stable investment that you feel is certain to outperform your 200k downpayment.  

High Park North 3 Bedroom 2 Bath with parking
Rental 3,500 Purchase 1,000,000
First/Last Deposit 7,000 Down Payment 200,000
Closing Costs less rebate 26,175
Total 7,000 Total 226,175
Rent 3,500 Mortgage 3,600
Property Taxes Property Taxes 500
Maintenance Fees Maintenance Fees
Utilities and upkeep 300 Utilities and upkeep 800
Monthly Cost 3,800 Monthly Cost 4,900
Monthly Equity Gained zero Monthly Equity Gained 2,033
Monthly Expenses 3,800 Monthly Expenses 2,867


King East-Rivertowne Condo | Rent – $1,675 | Purchase – $430,000

Like most downtown condos King East saw prices surge in the first quarter of 2017. Condos in the core didn’t experience the same decrease in prices that most freeholds saw in May, we are seeing more of a pull back in June. The supply has been so low for most of 2017 that we could see a further injection in listings at some point this year similar to what the freehold market experienced in May. However, rental rates have also risen and the rental market remains tight and always seems to get tighter in the fall.  When you factor in the equity gained, Buying can still make sense, but the lines start to get more blurred with a lower downpayment.  If Buying with less than 20% down you need to recoup the premium you paid for mortgage insurance.

King East Rivertowne Condo 1 Bedroom 550 Square Feet
Rental 1,675 Purchase 430,000 430,000
First/Last Deposit 3,350 Down Payment 5% / 20% 21,500 86,000
Cash Required for Closing Costs
Less FTB Rebate
28,190 3,375
Total 3,350  Total 49,690 89,375
Rent 1,675 Mortgage 1,924 1,558
Property Taxes Property Taxes 250 250
Maintenance Fees Maintenance Fees 325 325
Utilities and upkeep 100 Utilities and upkeep 200 200
Monthly Cost 1,775 Monthly Cost 2,699 2,333
Monthly Equity Gained Monthly Equity Gained 1,075 871
Monthly Expenses 1,775 Monthly Expenses 1,624 1,462


Richmond Hill Crosby – 3 Bed Bungalow | Rent – $1,900 | Purchase – $1,250,000

Is there more pain to come? As you can see from our rent vs buy analysis in Richmond Hill Crosby neighbourhood, speculation is rampant. Three Bedroom Bungalows that tend to rent for as little as $1800-1900 are selling for $1.25M. These speculative purchases are more susceptible to price decreases as the numbers don’t add up. Buyers here are paying $4,000 more a month for the privilege to own, when you subtract the equity they will gain they are still $2,000/month worse off. People are Buying here with the intention to build or simply because they think prices will increase which could prove to be a risky proposition.

Richmond Hill – Crosby 3 Bedroom Bungalow
Rental 1,900 Purchase 1,250,000
First/Last Deposit 3,800 Down Payment 20% 250,000
Closing Costs less rebate 19,175
Total 3,800 Total 269,175
Rent 1,900 Mortgage 4,530
Property Taxes Property Taxes 750
Maintenance Fees Maintenance Fees
Utilities and upkeep 300 Utilities and upkeep 800
Insurance 60 Insurance 130
Monthly Cost 2,260 Monthly Cost 6,210
Monthly Equity Gained Monthly Equity Gained 2,033
Monthly Expenses 2,260 Monthly Expenses 4,176