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Rentals cheaper as mortgages climb, study finds
& o& @, ~5 ], t* \Affordability gap grows
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Financial Post
& t: j& J; n! B" }5 T6 hPublished: Wednesday, October 18, 2006 2 s0 f* {; t& @7 C! v. ]
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Why own a house when you can rent the same property for a lot less?
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( P( }* }. w) i0 p" K& pA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants." _1 w: j0 j" c$ T; x+ N+ t
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"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.3 w; ^0 ^( r7 y" y
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The 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 $800 in 2006.
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% R W( S$ ]9 ?5 A"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.6 \ n/ F- a+ c* U; D' F
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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.
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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.9 T7 N: f: f* T0 y2 x2 j
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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 $1,220 in Vancouver.
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! E7 w0 K5 {( I- vGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.& A) e2 X4 G1 v9 u( K, K$ S+ D
; f" O2 d P$ U& m, q7 SBetween 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.
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One 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.5 [/ `6 B) g. k7 w& x" [# I
1 S, r& X2 g$ a: b1 h. L2 d1 p8 sMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.
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0 E8 Y1 Q/ |: Z$ M2 w8 ZReal 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. V% f0 M& d8 V+ y1 W
( ?, I) \$ q" C* U( l' fHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
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"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.- ?) H! ^7 [ u
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2 C0 \8 {! o1 a7 xDisclaimer: This is just published research data and do not express my position. |
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