Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
Affordability gap grows  
, {: d' @" g- Q. Z" o
Financial Post
) X# O% b1 [1 A$ _1 G9 zPublished: Wednesday, October 18, 2006
) A5 K% s! N9 _; d! D: n
Why own a house when you can rent the same property for a lot less?

A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
- B4 N: |1 `+ v& L6 k. ^0 K
( O, |0 X6 D* m"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

6 D: a9 O' _# N% y  k+ W: _$ RThe 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.

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.
: F* V; \4 m7 T0 l5 D, U6 g; r
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.

! c- l4 |6 \  W) U$ n5 u1 ]% _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.
' c1 |" \& G; x9 V
Generally though, the trend across the country is home ownership costs are rising faster than rental rates.

& Q* v1 D2 t, B; p( e4 I1 ABetween 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 I5 ?6 x* f3 x' @+ y/ E
! I5 c, O- L% P  R, _  A0 o, nOne 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.

5 v" j5 U/ w  g1 ~: @% W9 C6 X4 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.
0 m" T# i0 w! @: i( D
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.
+ E- y. Q! y4 y) I/ a) D8 L1 b
However, Mr. Campbell said apartments are affected by rent controls in many markets.

4 Y& u! |! l. F. H* D"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.
5 S# ?; W. e5 _+ b( r  `6 `* q
6 x4 F( j  Q! F. s* p
Disclaimer: This is just published research data and do not express my position.