Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
Affordability gap grows  

1 Q$ ?! F1 l, E6 i6 m( u6 s% Z' ]5 S) mFinancial Post
: N- R; T7 S! A8 T. oPublished: Wednesday, October 18, 2006

$ f! b  [2 c3 U9 a) g) oWhy own a house when you can rent the same property for a lot less?
, F, s# J! O  W2 W9 _
. D3 o2 f1 J! b% YA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
$ Q3 n! \- u; _& p
; R: E0 a/ {8 h5 R- E"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
  S7 U0 g0 _- Z: ~0 a! V- E* u
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 $800 in 2006.
: D( ]" [' A; v' \$ Q! g5 R4 K% j  |
8 p% R9 H+ N$ B& V"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.
3 W8 {7 m& k. Z3 X9 H2 Q
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.
5 C: i) q5 R( N' v! L( j; P
% y% o+ U6 X8 \9 [5 o" \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.
2 ]6 V5 e6 W$ x
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.

Generally though, the trend across the country is home ownership costs are rising faster than rental rates.
6 i1 r8 V8 z) J
  R7 a# T, M2 P# ^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.

. D' V# x$ P% N' TOne 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.

( d4 N+ n$ W* o0 wMs. 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.

: W, c+ L7 z6 N- S9 [( [6 ZHowever, Mr. Campbell said apartments are affected by rent controls in many markets.

/ h  U! |" m; V9 [( n"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.


! T! p' e: }2 o- P- hDisclaimer: This is just published research data and do not express my position.