Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
Affordability gap grows  
- V- d2 ~7 J+ q/ z4 x: \  G+ y
* O% {, i2 m- p0 R8 |Financial Post
% t* \- Q  `6 z$ v6 W. ^- ]Published: Wednesday, October 18, 2006

, j* U7 G# I+ F, H( sWhy own a house when you can rent the same property for a lot less?

A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
: k$ W7 ?9 z* O8 Q
! |0 }9 d9 }$ I3 Y, j% r"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

0 A3 Y) m3 W' [. E7 J- vThe study found the average monthly mortgage payment in Canada in 2005 was $1,304 based on a $250,000 house with 10% down payment. That compares with an average rent of $731 for a typical two-bedroom apartment last year. That $573 gap is projected to climb to $800 in 2006.

2 J& y/ e' j' ?( e"This is a fairly typical pattern that you see in housing. As house prices move up, affordability becomes an issue for first-time buyers," said Ms. Warren, adding renting becomes a more viable option.
5 J# a, c  J  j6 {  W- x' {, U
The current gap between owning versus renting would be even wider if the Scotiabank report took into consideration home ownership issues such as taxes and general upkeep.
; u/ _& p$ i/ B$ u+ d3 y
4 w& t# ^0 `4 ^* {& \Ms. Warren predicts a slowdown in the housing market with a tighter rental market leading to increased rents. "We will see a levelling off of vacancy rates. I don't think we will see landlords offering the same incentives, like free rent for a month," she said.
- Z$ d$ `5 O; c- e3 I3 D
One problem with the national number is it masks major regional differences, she said. The gap between owning and renting varied wildly across the country from a $31 monthly premium in Winnipeg in 2005 to $1,220 in Vancouver.

. E) H# w6 j* ^) PGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.

; ^8 g0 E& H( N* z5 V2 r% kBetween 2000 and 2005, rental costs have increased nationwide at a 1.3% annual pace. During the same period, home ownership costs nationwide increased 2.7% annually.
/ \& V  @0 m; P5 N
5 ~+ u2 _, f3 Z' d5 hOne side affect of declining affordability has been a slew of new mortgage products that have had the effect of lowering the monthly carrying costs of a loan. More and more consumers are buying products that allow them to pay off their mortgage based on a 35-year payment plan as opposed to a 25-year plan, which had been the norm for years.
' Q: U; M5 ]9 |8 P/ Y/ t
+ D* ^6 D: V# U0 \" ]* MMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.

) J8 P  I$ o1 X* {Real estate author Don Campbell said there is no question renting has become a better deal for consumers over the last few years. "When interest rates come back down, the pendulum will swing back to the homeowner," he said.

/ c1 `2 V5 I( Y2 x$ U6 X2 L/ YHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
6 P) @8 l5 W7 Z3 O& }
"In markets in the West, where it is not as controlled, rental rates are starting to take off. A two-bedroom unit in a 1970 building in Fort McMurray is $1,500, and that's in the middle of nowhere. Even basic townhouses in Edmonton that rented for $800 last year are up over $1,000," he said.


Disclaimer: This is just published research data and do not express my position.