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Rentals cheaper as mortgages climb, study finds
7 T; ^ K: T& L( u4 O; [Affordability gap grows
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. q5 y. }/ d7 ?- O% p6 ^4 t3 UFinancial Post
* Y5 w/ T- z8 p) w2 j) G( WPublished: Wednesday, October 18, 2006 3 k: o) n4 V# K
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Why own a house when you can rent the same property for a lot less?; f4 r+ O% ~. q* Q3 L! Q& W$ q
* J3 E" L4 K# @; m* LA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.0 q$ t4 d. Y: ]' {0 X A: w
( U7 v! F5 ?, N$ g- y"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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The 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 $800 in 2006. a$ O; a- Y) D% x9 S
5 V0 h; h- o5 o. O3 d/ r; D"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 w5 b" P9 g2 N b9 a# @
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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.- _; q! D; G# {/ R1 X& V' w4 ^
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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.% R5 n, }6 W0 X5 m
/ L4 p( }/ W6 T% L' d$ N( Y, JOne 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 $1,220 in Vancouver.# W2 K" ]- ]2 s$ m) P
6 _7 ]( Z# z# H* G- P' k: v1 PGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.* l& [( K. q; U& y: f) h9 W
" F/ o' Y0 O c1 Q: z2 YBetween 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.' D$ T7 ?" T& Q. l6 N
8 [8 z- ]% a, n( b; R- [One 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.( z7 |" x% f4 c9 k: n9 ?+ o
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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 $1,073 per month under a 35-year plan.
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: V) H( _# y# _4 {6 [ H1 {Real estate author Don Campbell said there is no question renting has become a better deal for consumers over the last few years. "When interest rates come back down, the pendulum will swing back to the homeowner," he said.8 `$ Z4 l! ~ W
+ m* p) {/ b0 f, Z/ DHowever, 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; J/ }7 I0 T9 f& C- L
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0 E4 k& f) d: \1 ~ g# [) yDisclaimer: This is just published research data and do not express my position. |
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