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Rentals cheaper as mortgages climb, study finds
" t) E2 C* V! E8 ~. L$ xAffordability gap grows 9 J) U8 b5 f2 t
$ j0 n+ r& r3 p* ~Financial Post
: L2 R) i( Y2 k& ~Published: Wednesday, October 18, 2006 4 O: m; _4 x) }+ ]# \# Y b
$ S0 c* X0 n. {. h9 \) LWhy own a house when you can rent the same property for a lot less?
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1 N2 d) ^" O; i9 q6 }' y" _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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d& x" R5 Q$ H+ K& [7 GThe 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.2 F# D! s0 t5 P& Q2 ?+ X
l! `3 X1 x! MThe 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.4 h* e& X( @/ l
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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.! K# f! U6 Z7 g
2 g" ^: p3 k6 l: A& \* k, EOne 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.; C# K1 q& d d# F
; c/ d0 e* a5 `8 f: }1 XGenerally though, the trend across the country is home ownership costs are rising faster than rental rates." x* I) z1 V; g, _6 L! X0 d
& q0 P: M: T; X' }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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3 {4 ^5 p `( }: ^: n/ v f1 _* YOne 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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1 L2 z# F9 s: k2 N: P+ R3 ^( 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.1 k! v0 ~: G, i- y8 X) ~/ b
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However, Mr. Campbell said apartments are affected by rent controls in many markets.) k( w& m9 }9 q% q2 x: j5 k, x
3 ^8 w. D: h; m( R( C"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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