This is where the home price-to-rent ratio can help you make a decision. Basically, the ratio compares the price of carrying a home for a year, versus the price of rent for a year. The cheaper of the two is typically the better option.
As explained by this July 30, 2017, Business Insider article, reading the numbers isn’t always easy. “What you’re looking for is any deviation from the baseline. If it starts to drop rapidly, renting is becoming a waste of money. In this event, home prices will either rapidly rise, or rents will drop.” When the index rises too quickly, renting may be the better deal.
At the end of the second quarter in 2017, Canada’s Organisation for Economic Co-operation and Development (OECD) index numbers show a sharp acceleration. However, does this mean home prices are coming down or are rent prices simply soaring?
Here in Lethbridge, both home prices and rents seem to be at a steady rate, but larger markets are prone to vast changes in rental prices. Take Calgary for example, with such high vacancy rates, rent has gone down in a lot of places to stay competitive, but Toronto rental rates continue to rise.
Will this soaring of the home price-to-rent ratio affect you as a buyer, seller, renter or property owner? As a buyer, dropping real estate prices is ideal, but as a seller, waiting for the ratio to even out would be a smart decision.
Keeping an eye on the local unemployment can help to determine your next move as a renter or property owner. As reported in this July 29, 2017, Lethbridge Herald article, “the Conference Board of Canada is predicting steady economic growth for Lethbridge.” With expected growth in the services sector of 2.2 percent, now might be a great time to invest in a second home as an income property as service workers typically are renters, but also for parents or children starting college. On the other hand, renters may be facing higher rental rates than anticipated.