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Rentals cheaper as mortgages climb, study finds( i5 Z" [' W; o4 P4 J* G
Affordability gap grows
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$ k# u% D$ }$ S, ^& A5 {7 }Financial Post
" _3 `9 P t% @9 |Published: Wednesday, October 18, 2006 : G6 {. s- R6 Q9 G B8 _ z4 l8 s
( F! ?; A0 x! ?0 U+ xWhy own a house when you can rent the same property for a lot less?. m7 H. J$ I- c4 @
6 B# i: F# Z. d, T$ h7 N- G- s' |A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
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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.& a+ d* A$ U( f. F
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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 $800 in 2006.
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+ \3 u7 z! `! { A' W9 C1 R$ x ^"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.
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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.6 f0 D' B. d/ C, M, h( i& q" H
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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.* T8 y4 K3 W" y0 C* O
" b0 T+ g/ T9 j2 C tOne 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." s r# ~2 b( m2 ^! n1 E) g
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Generally though, the trend across the country is home ownership costs are rising faster than rental rates. |* d% Q. H2 Z R2 z( x3 @; G, |- e7 q
' j M% d9 R! h% ]. MBetween 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: b4 _; p9 e+ m7 K4 a. @
) I5 [) U8 e! I/ L# oOne 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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; C/ y0 B6 x, Z( y0 O" u. d0 GMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.
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Real estate author Don Campbell said there is no question renting has become a better deal for consumers over the last few years. "When interest rates come back down, the pendulum will swing back to the homeowner," he said.: u# {4 h% z' w. f) ^
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However, Mr. Campbell said apartments are affected by rent controls in many markets.- I1 G+ y$ O4 f' d
9 [+ s- J# I/ _- }"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.7 }, R, z5 D! Q
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Disclaimer: This is just published research data and do not express my position. |
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