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Rentals cheaper as mortgages climb, study finds R$ Z" U, e' p7 `7 D
Affordability gap grows
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* ?9 g Q3 a* w* d, J3 U J3 _% BFinancial Post
7 G$ S7 Y. \7 DPublished: Wednesday, October 18, 2006 ) H0 {: K$ Z" @: z# J( B
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Why own a house when you can rent the same property for a lot less?6 P* G7 }) ?; l) s1 Z! t
9 ?- p" \" N: [8 x' rA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
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& u0 M, O, d7 p"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank./ B& @; \' F1 N6 k
5 w/ Q+ ^9 A' m" tThe 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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# w+ o: L }0 s; o/ Q# c- 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.
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3 V* m6 U0 I% A( m( x9 c+ EThe 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.! t) L& ?1 F8 o! {8 h ]& [
" D6 {: F; T# q9 @2 k7 m" W' q5 @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." @ E8 G9 N0 g7 ^: N
4 K, N2 S5 I6 r2 X/ a! w% WGenerally though, the trend across the country is home ownership costs are rising faster than rental rates., H% V' G* Z% m# _
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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.
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. N4 w5 b2 K: h4 OOne 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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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 $1,073 per month under a 35-year plan.
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+ w: q" J% i' I: d& Q' NReal estate author Don Campbell said there is no question renting has become a better deal for consumers over the last few years. "When interest rates come back down, the pendulum will swing back to the homeowner," he said.
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# w7 N: M' Y) |% \, @* y$ jHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
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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 $1,000," he said.- Z, n# H( z( I. K' B- c. ?- j. L. k
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: b$ o- E4 _! F4 U6 I/ J* X3 C& ODisclaimer: This is just published research data and do not express my position. |
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