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Rentals cheaper as mortgages climb, study finds
" ~ J# d8 n4 c3 SAffordability gap grows
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Financial Post. i2 [7 X( a5 @% m. J, u' y$ Q
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.+ J2 T' e) N& g# R( {2 ?; h2 L
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.- _' i) y, _* g0 A8 T
+ 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 $800 in 2006.. c1 S& g6 a5 v2 ?' O
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"This is a fairly typical pattern that you see in housing. As house prices move up, affordability becomes an issue for first-time buyers," said Ms. Warren, adding renting becomes a more viable option.4 ? S P% h# X. B8 a
4 Q% A, U1 A# G0 v. CThe current gap between owning versus renting would be even wider if the Scotiabank report took into consideration home ownership issues such as taxes and general upkeep.
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4 ?9 J$ 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./ V! F4 f$ w$ U0 \/ r1 S d* g9 W& v
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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 $1,220 in Vancouver.1 y7 m7 Y5 J3 x6 ~/ {
, J/ `( z+ n v2 rGenerally though, the trend across the country is home ownership costs are rising faster than rental rates., Z2 }1 W# P$ j) ^ N6 U
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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.: k2 J& s* R# I9 r3 M' O
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 $1,073 per month under a 35-year plan.& P+ d7 Y6 c" p- f% v2 j2 p
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Real estate author Don Campbell said there is no question renting has become a better deal for consumers over the last few years. "When interest rates come back down, the pendulum will swing back to the homeowner," he said.- N" w- e5 J* d
0 H Y% e- r; k. A5 EHowever, Mr. Campbell said apartments are affected by rent controls in many markets.! h, T. c6 j4 a. L
6 N; l0 D. S+ C$ 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. |
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