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Rentals cheaper as mortgages climb, study finds
5 ^3 l* t1 J. `1 ?2 k/ d" NAffordability gap grows
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, `/ m: o) Z1 c' KFinancial Post! j. U) C0 O* F% H( G7 ]3 f4 H
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.
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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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! i# r; v6 z" CThe 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 $800 in 2006.! s- T8 e& {# F0 a$ }9 @, Y
. M$ T" R( t% y& k4 q"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.6 {& t& P! O2 B g
6 Q& X( z% p7 G( yThe 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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( P4 O6 o. D1 k( S5 PMs. 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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) v7 @& w$ n0 H4 r/ mOne 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 $1,220 in Vancouver.
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Generally though, the trend across the country is home ownership costs are rising faster than rental rates.0 z- n2 d' p$ u, ^( ?) V: B7 u0 E
: B! ?/ F! @/ A, T, I$ I8 e: WBetween 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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7 t+ ^8 R. B% n1 hOne 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.( U4 [. b _, R0 c( t
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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 $1,073 per month under a 35-year plan.
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7 L( R$ r1 B5 z4 g1 {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) C" c( N% E0 J1 v8 C, }
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However, Mr. Campbell said apartments are affected by rent controls in many markets.0 V9 g0 Y3 P$ q3 v$ ^% q3 G
- N- P9 Q) O. E4 [% ["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.. z: K9 B2 [( ]) w* D
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3 f5 V) t" E! M4 e+ ODisclaimer: This is just published research data and do not express my position. |
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