Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
$ c* N1 D& c6 ?7 E9 ]+ M- ~! A$ XAffordability gap grows  
# [! P% a2 {, f) G- m$ O# L
+ e, D* \, k# Q7 r' {0 LFinancial Post
Published: Wednesday, October 18, 2006
* c2 n/ X5 H  N
Why own a house when you can rent the same property for a lot less?
4 i) ^9 L6 b- z1 e' G/ B$ g! I6 W
A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
- ?" A  t7 w. T: j. S% J% }' N1 J
" \% c& `' q+ i"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

7 C, I( g* Q8 r: I# d2 |3 N7 CThe 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 $800 in 2006.
8 C$ W! H; Y% j6 R6 O1 ~
1 {$ e  }. f8 G$ |* G* d; G"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.

4 n3 x7 U. X3 n$ Y+ [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.
# ?; o% J* Z& [7 J
4 `& b' @# G0 V! V1 i2 c2 @0 Q( @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.
+ W+ ?0 d4 C2 P
* @4 I; }  J+ g9 ^/ D2 z: _1 aOne 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.
; e' v, a2 h1 Q7 z9 M+ q/ a% q- J
* U- L2 e  u0 }; v; o  B9 w' gGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.

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.
7 m) u- N, D- b5 n/ M% ~
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.

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.
; i7 B. ~% r/ s6 d4 r' z3 H
& J# G8 I4 J7 t. F# r* pReal 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 \  x* D5 g1 P& v: q, c
7 C0 o) r" P6 t/ R& MHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
9 g' i! R1 j) i# @3 x; I: s! 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 $1,000," he said.
3 }- n5 p& c7 f; {
! m1 k  u% l0 {2 g8 _5 D( ?
0 o, R. Q: }$ m2 ^$ I$ iDisclaimer: This is just published research data and do not express my position.