Real vs nominal dollars in a buy vs rent result

Two ways to count the same money

Nominal dollars are the face amounts on a future statement. If a home sells for $846,359 in ten years, that is the nominal figure. Real dollars restate that amount in today's purchasing power by removing the assumed price inflation.

Neither view is wrong. Nominal tells you what the account balance or sale cheque will say. Real tells you what that amount will be able to buy compared with today. Compare like with like: a nominal future amount against today's real salary leads to wrong conclusions.

The calculator reports both. In its output, the difference between buyer and renter net worth appears as a nominal figure and as a real one called the real difference.

One example in both views

The example uses the usual illustrative base case: a $600,000 home with 20% down at 4.5%, a 25-year amortization, 3.5% yearly appreciation, $2,300 monthly rent growing 3% a year, a 5.5% nominal investment return, 2% inflation and a 10-year stay in Alberta. These are planning inputs, not market data.

Why the gap grows with time

The longer the horizon, the more inflation compounds, so the real figure moves further from the nominal one. Using the same base case at different stay lengths shows the pattern.

• At one year the two views are within a few hundred dollars of each other.
• At 25 years the nominal lead looks large at $221,716 but is closer to $135,143 in today's purchasing power.
• The sign of the result does not flip when you convert, because both households are deflated by the same index. It is the size that changes.

Real returns and inflation moving together

The most common mistake is changing one inflation-sensitive input and leaving the others alone. A nominal 5.5% investment return with 2% inflation is a real return of roughly 3.4%. If you raise inflation to 4% but leave the 5.5% return unchanged, you have quietly cut the real return to about 1.4%, which tilts the comparison toward owning.

The calculator avoids the problem by treating each assumption as a nominal input, and by showing real results as a separate view. When you test an inflation story, adjust the return, rent growth and appreciation together. Inflation and buy vs rent walks through that.

In the base case, changing inflation alone from 0% to 4% moves the real lead from $45,069 to $25,632, while the home value in today's dollars falls from $846,359 to $571,770. The nominal numbers barely move, but the real purchasing power of a future sale price is quite different.

Which view should you rely on?

Use nominal figures for cash-flow questions: what will the mortgage balance be, how much cash will be in the account, what must I pay at closing. Use real figures when judging whether the outcome is worth the commitment, because future dollars buy less.

A short checklist helps:

• Check that the inflation assumption is stated and is one you are comfortable with.
• Compare future outcomes with today's income and costs in real terms.
• Look at the sign and size of both numbers before concluding anything.
• Do not compare a real result on one page with a nominal result on another.

What the real figure does not tell you

A real result is only as good as the inflation assumption behind it. Actual inflation will differ from the planning figure, and it will not be the same for housing, food and wages. Inflation assumptions are also not guaranteed; the Bank of Canada's 2% target is a policy aim, not a promise.

Also remember that the comparison covers only the stated inputs. It does not capture changes in your income, family size or personal preferences. For how different assumption bundles change the answer, see scenario analysis, and for the idea of break-even timing, see break-even explained.