Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
9 H' Q/ y8 [3 ?! r$ a5 E9 W/ QAffordability gap grows  

5 O0 T3 t$ ~! F( G% CFinancial Post
Published: Wednesday, October 18, 2006
: m' D/ S/ H0 l4 f$ Z9 c
Why own a house when you can rent the same property for a lot less?
4 H' G2 b7 t; |
1 I6 T. c: z5 MA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.

3 k- S; v! d$ i. y/ ~"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
, O/ u  L: A% U0 a4 U) g
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.

/ ?! l' g" D+ H5 i" z2 g2 b4 x+ c"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.

" n8 Q( f) H# Y( T1 p0 |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.

: @! q; b. B# B8 u8 p0 Z) QOne 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.

, H/ D( j) B# c; u3 n$ Q0 V/ s6 gGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.

3 ]. {9 Y. J! }# n  `; S, O/ I/ DBetween 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.
$ L! X- E# X2 y- w
$ n3 d4 O0 n: O: {. Z" I5 A8 t2 }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.
" ]: {( P, B) t2 a) [8 ~7 _4 a
; m8 ^' ^' r( D% q/ IHowever, Mr. Campbell said apartments are affected by rent controls in many markets.

: m. M9 Y! ]' C7 i. e"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.
. X) }( Z4 Z# E- I  C% b

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