The half a million-dollar question isn't it? Is buying a home worth it?
Is it worth taken on a massive mortgage and commitment? Handling home maintenance and expenses? Is it an asset or a liability?
Today, we are going to take a deep dive into the cost of ownership and if it still makes sense to buy a home in 2021. I'm Aly, a Calgary real estate agent for the past 6 years. I specialize in helping first-time homebuyers with making that step into homeownership.
Now, let's dive in!
Let's be honest, prices for homes in Canada have skyrocketed since the 2000s where most owners that had bought a home at that time would be coming up to the end of their mortgages. (Does anyone else just instantly become depressed with that stat?)
In the year 2000, in Calgary, the median price of a single-detached home was around $175,000.
In January 2021, this same single-family home has a median price of just over $500,000.
Now, if we come back to our question of if it's worth it to buy a home, I hope you and I have the same idea. ABSOLUTELY! IN 2000.
In the year 2000, the interest rate for a 5-year term was 8.3%*. Making the monthly cost of ownership before taxes, utilities, and maintenance of a single-family home be $1,108/month at that time**. With inflation, we would be looking at $1,574/month***.
Now you would be saying to yourself, to come up with $35,000 (20%) in 2000 might have been easier than it is today. And you may be right, this amount would equate to nearly $50,000 today, which is about a 10% downpayment of a home today. But if we run the same calculation, using today's mortgage rate of 2.0%, today's value of $500,000, and a downpayment of $50,000 (which we would need to add in a CMHC premium), we would be looking at a monthly cost of $1,966/month.
Not so much of a jump, is it? We are currently looking at an increase in homeownership cost of $392/month before any other expenses like utilities or taxes.
But now let's look at the average income of today's buyer compared to an inflated amount from 2000. In 2000, the median household income was $58,861**** (which is $83,635 today) compared to 2019, which was $105,060*****
So right now, a household in Calgary currently earning about 25% more than it did in 2000, and the house cost per month has also increased 25%.
So remember when you were thinking 2000 was an awesome time to buy? Well, your time isn't so bad either here in Calgary.
Despite our ups and downs in our real estate market, we have seen appreciation in the market, without a doubt. But as I've demonstrated here, the numbers do look bigger on the surface but are really in favor of someone buying a home now.
Why is that?
Well, take a moment to think about how the $1,108/month was allocated each month. At 8.3% interest, a significantly more portion of the payment was gone towards servicing the debt than anything else. Today, we are seeing rates as low as 1.9% fixed for 5 years. In February, this was 1.39%!
So what does this mean?
More of your home purchase today is going towards just that, your home. Not the profit column of your lender.
But now you might be saying, I'm not taking into account the additional costs of utilities, taxes, maintenance, etc. And you are right, all of those costs have increased with time. But our homes are now more efficient (maintenance), we now have narrower lots to work with (taxes) and homes have been developed with technology in mind to reduce the cost of maintenance. Not to mention that the biggest costs of your home are somewhat taken care of with new home warranties, like the envelope, HVAC systems, etc. for the first 10 years of your home. Which wasn't introduced until 2012.
Finally, you might still think that the market is volatile and there isn't more appreciation available here. Why would I buy a home right now when I can rent and not take on the hassle? And I can appreciate this mindset. Even though the cost has not significantly changed since 2000 to own a home, we are still working with much bigger numbers. And these numbers might be just too big of a commitment to enter into. So you'd rather rent.
Well, the average rent between last year and now, according to rentfaster.ca for a single-family 3 bedroom, 2.5 bathroom home in Calgary is between $1,970 to 2,100/month. So as of today, it would be cheaper to own a $500,000 home than the average rent for an average home in the city (albeit there is a down payment component, but you will appreciate this over the years).
Let that sink in a bit.
All things remaining equal from 2000 to now, with inflation, it would be about the same cost for you to own a home as it would have been for someone in 2000 in your shoes.
But that homeowner in 2000, who bought their home for $175,000 2000 dollars, just got to sell it for $500,000 2021 dollars. Seems like a worthwhile investment to me. Imagine what your 2021 dollars will get you.
What do you think?
References: * - From https://www.superbrokers.ca/tools/mortgage-rate-history ** - based on a 20% down payment to avoid CHMC and prior to any property tax contributions. ***- estimated 1.69% increase in inflation each year. https://www.in2013dollars.com/canada/inflation/2000?amount=1108 **** - From archived StatsCan: https://www12.statcan.gc.ca/English/profil01/CP01/Details/Page.cfm?Lang=E&Geo1=CMA&Code1=825__&Geo2=PR&Code2=48&Data=Count&SearchText=Calgary&SearchType=Begins&SearchPR=01&B1=Families%20and%20Dwellings&Custom= ***** - From the Alberta Dashboard.