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Rentals cheaper as mortgages climb, study finds
2 w7 @: E2 {( j' {! yAffordability gap grows # y" s1 q+ Z, Z" B/ J
' V7 k% t% r4 M. XFinancial Post. e+ ?& C5 i0 d8 L1 w( S; a' l
Published: Wednesday, October 18, 2006 . b5 n, T: w" ]5 c) U$ V
/ X) A, h: d( [5 w9 CWhy own a house when you can rent the same property for a lot less?& {; g2 U1 a8 k8 l s9 H) k2 C7 p
- _: ^0 F+ `4 J& E8 G- uA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants./ Q; P% e$ M% z! _7 S$ G! {
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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.
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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 $800 in 2006.
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% d9 u1 a: B- r; q$ o+ O. R/ R"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.
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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.: s( c' f e: o' v, R) r$ Q! Y
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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.
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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 $1,220 in Vancouver.
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3 v- y# ^5 {4 D. gGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.
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2 }$ }" _. o7 m' j1 m% W5 X& QBetween 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." H2 K" c4 ?5 _+ v* w5 T
8 ]* @/ o" ~, _& K( q. pMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.& \ b% ^1 y$ `0 I. O7 M9 v3 z
. i+ E$ w$ {( S1 W- ~" d1 fReal 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.
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However, Mr. Campbell said apartments are affected by rent controls in many markets.
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3 L' z# v1 \3 Z* A+ C"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. |
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