Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
7 a7 O9 c7 u5 X: t6 b) s, A6 hAffordability gap grows  

! n! ?0 X: A4 z' fFinancial Post
; q# x- ]5 K4 u8 x# D& e7 ~8 rPublished: Wednesday, October 18, 2006
* \/ s, \' M3 A
Why own a house when you can rent the same property for a lot less?
$ r1 V* g+ r* z% k; w
A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
9 d/ Z* C* ]7 z7 P
" ~  L" b6 }2 m+ D4 M# M# V"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

5 a; t0 J3 J6 V" L' I. lThe 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.

2 e3 q- L! J+ I0 w7 K1 J"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.
' j9 f" |! u8 }) \; F/ c6 h/ \+ Z
# p" }* ?- s5 AMs. 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.
( J4 z! q6 o6 {
Generally though, the trend across the country is home ownership costs are rising faster than rental rates.

8 u4 l- W& V5 t0 ?2 uBetween 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.
" a, w* G: o5 ]' ]
3 Z, I6 G  r3 P2 ?+ _- v' a0 |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.

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.
" r5 e- g. _5 j8 b0 m
' ^! v1 r7 f' ~7 Z- GHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
" Q. f1 f0 L1 R
) K& J: v0 y6 t8 J/ T) l"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.

# O' Y% r! t4 H/ c1 h
Disclaimer: This is just published research data and do not express my position.