• 519HB

Should I Sell My Home in London, Ontario, and Rent Instead?

The debate between buying and renting is one of the most heated issues in real estate. That’s especially the case in Southwestern Ontario, where the real estate market is red hot.


If you already own a home in London, Ontario, or nearby, you may be tempted to sell and cash in on the booming property market. You may even wonder if it makes sense to sell your home now and use that money to live more cheaply by renting.


The truth is, there’s no simple answer. Everyone’s circumstances are different and for you it may make a lot of sense to sell your house in London, ON, and rent instead. Let’s look at why you might want to sell your home right now and whether you should buy or rent afterwards.


Why You Should Sell Your House in London, Ontario Now


There’s one very good reason for selling your home in London, ON: high prices. In February 2021, the average sales price for a home in London and St. Thomas went for over $616,000, which was the sixth consecutive month that prices increased.


London and St. Thomas has also seen prices increase by 30-35% over the past year, making it one of the hottest real estate markets in the country. The demand is largely being driven by low inventory and huge demand. That demand is due in no small part from families from Toronto looking for bigger houses to accommodate their new home offices.


If you already own your home in London, ON, the current seller’s market is a big opportunity. Depending on how much equity you have in your home, selling it could give you a significant financial windfall.


Plus, there is no guarantee that housing prices will continue to rise at the current breakneck pace. Some of Canada’s big banks, for example, have warned that Canada’s housing market may be overheated, which could mean a correction is on the horizon. With house prices so high, it may be a great time to take advantage of the market and sell your home.


Why You Should Hold onto Your House


That being said, London, Ontario’s housing market seems to be fueled less by speculation and more by simple supply and demand. That suggests it’s in a much healthier state than some of the more speculation-driven markets in the country.


There are few houses available on the market here, with just 0.6 months of inventory left in London and St. Thomas. What that means is if no new houses came on the market, all current houses for sale would be bought in just 0.6 months – a little over 2 weeks!


Unlike the Vancouver or Toronto real estate markets, there isn’t much evidence that buyers are scooping up London real estate just as an investment vehicle. Instead, people are actually moving to London, ON, because homes here are cheaper and bigger than what you can get in Toronto. With more people working from home and Millennials looking to start families, those two factors are major selling points.


That’s why many analysts are predicting that the Southwestern Ontario real estate market will continue to boom in 2021, even if things cool off a bit elsewhere.


Should You Rent or Buy Again?


But if you do decide to sell your house, that’s when you’ll have to decide whether or not you want to buy a new house or rent instead. While you may have been told that renting is just paying somebody else’s mortgage, the truth is a lot more nuanced.


Depending on your situation, it may actually make more financial sense to rent rather than buy. As we’ve already discussed, the real estate market is red hot right now and even mustering up a downpayment for a new house is a big challenge. Ideally, you’d want a downpayment of 20% since anything less and you’ll have to buy mortgage insurance. The PST on mortgage insurance alone can add well over $1,000 to your upfront costs.


If you were to try to buy a house listed for $600,000, for example, you would already need to have saved $120,000 just for the down payment! Land transfer tax, lawyer fees, inspection, appraisals, and title insurance would add on at least $10,000 extra in upfront costs.


The good news is that a bigger down payment would mean lower monthly mortgage payments, but even with a 20% down payment, your monthly mortgage payments would still be over $2,000 assuming your interest rate is about 2% and you went with a standard 25-year loan.


If you can’t afford the 20% down payment, then your monthly mortgage payments will creep up and could even start pushing $3,000. That doesn’t even take into consideration other costs, like property taxes and repairs. Even worse, a lot of that is interest that you’re never going to get back. In your first year alone, for example, expect a total of nearly $10,000 of your mortgage payments to go just towards interest.


In contrast, the average monthly rent for a 2-bedroom house in London is just over $1,600. While it’s true that that $1,600 is technically “paying someone else’s mortgage,” it’s also a lot cheaper than mortgage payments that are setting you back $2,000-$3,000 each month.


In fact, you could invest the money you’re saving by selling your house and renting. Historically, equities perform much better than real estate over time. For example, a U.S. study found that while real estate values increased by 185% in Boston between 1997 and 2019 – which was the best performing market out of the country’s 10 biggest cities – the S&P 500 went up by 552% over the same period.


Of course, renting isn’t for everyone. The stock market is volatile and having a mortgage tends to make you much more disciplined about investing. After all, chances are you’re going to make your mortgage payments on time and with each mortgage payment you’re building equity in your home. In other words, you’re being forced into investing.


It’s nice to think that by renting a cheaper house you’ll invest your savings, but a lot of us would definitely struggle being that financially disciplined!