Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
" ~  J# d8 n4 c3 SAffordability gap grows  
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Financial Post
Published: Wednesday, October 18, 2006
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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.

  k# r+ L6 a; ^, z9 ^"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

+ z" C) n! v1 c) K& q# {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.

"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.

4 Q% A, U1 A# G0 v. CThe 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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4 ?9 J$ m& F& u2 k4 FMs. 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.

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.

, J/ `( z+ n  v2 rGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.

Between 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.

3 W3 t5 \7 P5 E2 @" 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.
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+ Z, c$ _  O/ Z0 l& I, ?$ {9 OMs. 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.

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.

0 H  Y% e- r; k. A5 EHowever, Mr. Campbell said apartments are affected by rent controls in many markets.

6 N; l0 D. S+ C$ H) N  A5 B! f3 G"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.
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Disclaimer: This is just published research data and do not express my position.