Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
( {; s/ x( D+ j9 E" _, s) YAffordability gap grows  

6 s" }- D* D! f: S- sFinancial Post
# t. h* h4 L- c4 ^: b4 h% VPublished: Wednesday, October 18, 2006

4 O; C9 e/ j% a( L5 |Why own a house when you can rent the same property for a lot less?
4 e7 b7 f, M3 Z- |" S: y5 a# p
9 p; u. C$ T7 x# b$ J8 sA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
7 }: j' i! r( s. }2 I8 O
"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

, P  k0 a' a! s  n* o$ _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.

"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.
! F. e/ `* A8 k( R
* w" P9 e; u2 P/ ^0 a: CThe 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.
3 N  d- A' V6 z5 T8 |4 }: H: q
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.

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.

Generally though, the trend across the country is home ownership costs are rising faster than rental rates.
0 K  D& p5 ?9 P! s9 T! Y
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.
% T) _, c/ F: Q& z% [1 _* B
. [. x0 S. R0 `4 ]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.

  Z) y! E; {# L) _8 p+ ^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.

% r2 v! R: L5 V- gHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
1 Q! L2 n5 z" u5 c; S& O. q; a
& a+ m" X% Q4 c"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.