Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
$ |  Q" p3 B9 G. ^  ]4 V- f$ aAffordability gap grows  

0 q7 A- W. i+ gFinancial Post
Published: Wednesday, October 18, 2006
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Why own a house when you can rent the same property for a lot less?

A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
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3 S' i& D5 K6 a' m8 B4 d"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

0 L: U6 K" r% N8 S3 c- f( JThe 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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  _; d  y9 O- l"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.

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.
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# W) C! J, }" p; zMs. 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.

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.

' p: {& ?- h5 f* o# T9 V1 L) |Generally though, the trend across the country is home ownership costs are rising faster than rental rates.
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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.

7 [5 ^* W. S9 r3 k1 KOne 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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5 J9 i1 B! i2 p# F! o) `8 d" OMs. 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.

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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However, Mr. Campbell said apartments are affected by rent controls in many markets.

: x' I8 F9 B( D! B0 k% l( z" @; f"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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# |, K" W9 T0 M& M0 PDisclaimer: This is just published research data and do not express my position.