With interest rates on a downward slope, it may now be cheaper to buy a condo than to rent a comparable unit in the same community, says one real estate data firm.
The monthly rent in a development can now surpass the mortgage payment for some homes there, a fact that can help industry professionals convince their clients to transact, says Zonda Urban.
Jon Bennest, the company’s Vancouver-based VP of product development, said that just two years ago, market conditions were such that buying was almost double the cost of renting.
But now, due to where prices and mortgage rates currently sit, buying can cost slightly less per month, assuming one can cough up the down payment and strata fees.
“We’re looking at two different scenarios in two years where your mortgage payments versus rent was double and now is the same,” he said during a May 14 presentation at the Vancouver Marriott Pinnacle Downtown Hotel.
“This might be a good time to kind of consider, if you can get that down payment, it’s something to kind of talk about.”
“It could even get to a point where your mortgage payments might be lower than what a comparable rental is,” he said.
Bennest gave the example of the City of Lougheed development by Shape Properties Corp. in the Burquitlam area.
In 2023, the average price per square foot was $1,185, the average price was $938,520 and the best five-year fixed rate was 5.49 per cent. Assuming a 25 per cent down payment and a 25-year amortization, this meant the monthly mortgage payment was $4,292, almost double the $2,200 for a comparable rental in Burnaby, he said.
Fast-forward to the present, and the average price per square foot is $1,000, the average price is $792,000 and the best five-year fixed rate is 3.84 per cent. As a result, today’s mortgage payment would be $3,073, which is less than the $3,168 per month for a comparable rental, he said.
With monetary policy on a bumpy road, it’s unclear how long this convergence of mortgages and rents will last.
Over the past 17 years, mortgage rates went from highs in 2008 to lows in 2022. Consequently, the best five-year fixed rate in 2022 was one per cent. “Crazy low,” Bennest said.
After climbing back up to around six per cent, mortgage rates appear to be in an easing cycle once again. Although the Bank of Canada hit the pause button in April, many economists anticipate further cutting by year’s end amid global economic turmoil.
“Interest rates are on the decline, and I think that’s going to be the most meaningful component of the offering when it comes to convincing people that it’s a good time to buy,” said Bennest.
Still, despite cresting above mortgages in some instances, rents are balancing out as new purpose-built supply comes online, he said.
“We don’t really see at this point any sufficient demand at projected inventory levels to result in any increase in rents. If anything, our prediction for the next one to two years is a flat-lining or stabilizing of rents.”
