Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
: I+ c. H3 ]% E6 p9 _Affordability gap grows  

$ d# S. C% L0 o3 L9 l' x+ R+ xFinancial Post
+ ^. Z) P9 T. C) x! ^- OPublished: Wednesday, October 18, 2006
3 Z6 t8 d1 b+ W% K+ F
Why own a house when you can rent the same property for a lot less?

3 b# H6 F' b7 aA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
/ }% _& }( ?. Z2 t6 z1 z" W, z
5 b/ x' @. g4 e: Z! a"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
- {/ b) ^" ?% D% q. C7 [
  N5 d% `7 G+ z! P. w, NThe 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 $800 in 2006.
' F, E; S9 U5 t; @$ {0 Q0 K
"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.

" b6 e, m5 ?  y) {( a- c3 QThe 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.

6 n/ W' e% K' JOne 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% N! S4 h& w% fGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.
9 ^: l. [7 \: }& P
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.
  D; N  [2 h2 g! y
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.

# n5 W& c6 g5 k- f1 [' H# FMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.
8 s4 u: J. k3 r$ {
) x  n$ M  u+ WReal 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.
: r* G5 i- E" Y8 e' v: C# {( C1 W9 x( g
However, Mr. Campbell said apartments are affected by rent controls in many markets.
2 l9 u1 P' C8 g$ F9 h: O9 V
"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.
( P" J: E4 v/ W! w( V

. {) ~( h5 k/ C3 w8 UDisclaimer: This is just published research data and do not express my position.