Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
Affordability gap grows  
: L% J7 @  I3 X4 ~; o3 ^
Financial Post
, E! c. M; N- n5 [6 {- Z( GPublished: Wednesday, October 18, 2006
; L8 p, L: L4 o( C
* X4 B3 \- z" q8 L; iWhy own a house when you can rent the same property for a lot less?

  B: {9 k% K, _- A" ?4 ^! tA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.

( ?; b0 G5 b% U) p# K# }. A$ y9 ^"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
$ _. ]! L* o' I. C8 z( K4 O  a  P
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.
% z+ v' M. G2 N9 H% Y
- R# O4 r* {2 D. x8 m0 f"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.
6 d! Y8 T8 w1 S' B$ J
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.

) A. B$ x" \7 c  [; j8 S4 ?8 BOne 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.

Generally though, the trend across the country is home ownership costs are rising faster than rental rates.

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.
5 z( A& J; N8 f7 C3 o
  P1 @2 _2 ]! V5 c, F; ?3 G, P, lOne 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.

' U" @  @. ^& @, t; o7 i4 wMs. 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.

6 t0 l1 d4 U$ y- kReal 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.

: C; T: W; X6 p% X5 M$ L# l; d: vHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
  c, V/ ?6 g3 F: X! G0 o9 v
1 M& z9 ?" {% }- M3 i1 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.


' N+ d! U  N( S# PDisclaimer: This is just published research data and do not express my position.