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Rentals cheaper as mortgages climb, study finds* M2 T2 s4 `1 Q' a5 f' }* f
Affordability gap grows
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Financial Post
7 a% z# u! T; IPublished: Wednesday, October 18, 2006 9 W+ t E2 @% V7 ?! q ?; f6 s
, m) V3 N& Y6 q3 M+ ?Why own a house when you can rent the same property for a lot less?
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A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.& M* ~( l0 ]# x" [2 i4 g7 o
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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./ f8 u m) T% ~( t7 M
& ^: A6 u0 i4 h0 @3 UThe 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 $800 in 2006.
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! C' E' V4 L" H. y"This is a fairly typical pattern that you see in housing. As house prices move up, affordability becomes an issue for first-time buyers," said Ms. Warren, adding renting becomes a more viable option.! R5 B+ E0 C1 `, N2 T
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The current gap between owning versus renting would be even wider if the Scotiabank report took into consideration home ownership issues such as taxes and general upkeep.; Z1 I$ B7 \5 y. |7 L9 r3 |
5 [+ [; E; K7 e6 k# RMs. 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.4 I% Z. y; k$ j
* r3 v B* C' a6 c. bOne 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 $1,220 in Vancouver.
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! Z% P% v m- ^3 PGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.+ H! b$ h7 b! B+ a6 H4 g
9 ?8 L$ B% Q4 D5 d7 _7 U5 ^3 E0 PBetween 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.' J! b X- m' F* q( t
. J% E. Q1 d% o+ LOne 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.# B( i1 b/ d% D1 A( L# d, \
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Ms. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.
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; Z, E6 H7 @% C* b0 [Real estate author Don Campbell said there is no question renting has become a better deal for consumers over the last few years. "When interest rates come back down, the pendulum will swing back to the homeowner," he said.! G6 j( @- C* `2 T/ C. E# c
. u8 @0 x2 F/ P) U) w6 R. eHowever, Mr. Campbell said apartments are affected by rent controls in many markets.- \# i& X- o. {4 J1 B" x7 r
" ?4 e' A5 L$ P6 L& b"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. ]8 S9 ~, j' L; `7 ^
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Disclaimer: This is just published research data and do not express my position. |
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