Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
( g- t/ w! n5 D$ lAffordability gap grows  

- }) i6 o* u" q9 d' m* M6 C3 q, wFinancial Post
8 V5 A, X/ ]+ @6 Q. y/ uPublished: Wednesday, October 18, 2006

+ X) V$ s! B. a# M1 l& y) \Why own a house when you can rent the same property for a lot less?

% Q" D9 w, X- x! wA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.

# v- b( `" m! L"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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+ c: g6 c2 H* `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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"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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3 H0 n3 O+ q' \" Z/ M* zThe 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.

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.
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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 $1,220 in Vancouver.
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: k) X$ n. V- x$ x/ \' `: k) @4 CGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.
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/ m+ o9 v. Q. L( x  V! b/ 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.

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.
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. P+ A1 b4 D- h8 q0 jMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.
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& |$ l) i+ T* |( ~7 cReal 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.

3 A- h3 q; B  h0 i! D9 DHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
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% P3 |- z" O/ R( ["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.


Disclaimer: This is just published research data and do not express my position.