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Rentals cheaper as mortgages climb, study finds- r" u+ _1 k" m. x; Q
Affordability gap grows ) i! e- d, P R4 }; S
2 o1 h$ h, v' Y$ j6 S. AFinancial Post
, n n. x) }0 }+ t7 \Published: Wednesday, October 18, 2006 ) S& I$ V6 z; p" [0 q) @
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Why own a house when you can rent the same property for a lot less?# W( |* L- t" R0 V) O6 d
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A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.3 M- D$ t, u% M- o2 h) J' R
4 q C; _5 p6 w. i3 u8 C"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank./ X' n$ p5 {2 R
) g& [3 R7 e' V% g s VThe 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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"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.
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0 s, w# f" i) e6 O' MMs. 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.- [7 X' O8 z @( ~; ~+ j/ D
# G% ^) s/ R) h4 U& ]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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- i X2 I! |( N" C0 i! tGenerally though, the trend across the country is home ownership costs are rising faster than rental rates., B/ \- M1 k7 M& ^
9 J- }1 `9 O6 W# v- 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., e7 _/ t: Z: a# `8 N
& J; K. C: w5 ]3 nOne 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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4 u- X! j9 f& k5 p5 r } RMs. 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./ S, {& K) O2 s0 ?/ q: @8 M* u
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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.; a9 D0 v X4 G+ z
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However, Mr. Campbell said apartments are affected by rent controls in many markets.1 i6 G+ s S7 w8 w; r+ Z
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"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 $1,000," he said.8 M. V/ g' @0 s
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( A3 r: o( ]* Z$ r; t/ ZDisclaimer: This is just published research data and do not express my position. |
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