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Rentals cheaper as mortgages climb, study finds& j+ y. o9 u; d: U7 Q0 G
Affordability gap grows
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+ V4 j) p" ^+ H' p. p8 xFinancial Post+ a/ O) ~ V. ^6 [
Published: Wednesday, October 18, 2006
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Why own a house when you can rent the same property for a lot less?% W- x7 A5 _. n& H7 o% r; F7 [
5 k% ]9 Y% F! U* _, YA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.' ?! j6 y4 M- F8 l
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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./ A9 f2 h* Q1 A
$ y7 d2 X' V: WThe 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.# P! k1 R2 k4 I3 v
6 U2 O e8 E# D* O! f; j, 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.+ E# R8 A5 i7 u- S* |
" _ x+ b5 u V9 N: p3 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.( L0 c9 H! {5 a4 o z7 ~
( Q- J: N! t1 e" ?+ f" {. C9 {6 DOne 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 $1,220 in Vancouver.. K" U$ J5 m& e% o# D. |
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Generally though, the trend across the country is home ownership costs are rising faster than rental rates.4 I, P# ^8 W f. A
/ U% b* t" j" p2 T) |& cBetween 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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( k) l8 C/ m9 e) I) a/ c/ qOne 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.9 Y: i# p U# a5 d/ _7 I
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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.* i) w% U6 [' ^" s
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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.
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* B2 o6 }! k/ Y; P# I, } lHowever, Mr. Campbell said apartments are affected by rent controls in many markets.+ \ n3 T) s# e( ?+ d) @- {( E
4 d/ k& Q* @0 i5 D/ |+ w"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.% c: a4 _0 `' Y4 a+ T& a% q& X
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Disclaimer: This is just published research data and do not express my position. |
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