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Rentals cheaper as mortgages climb, study finds5 x g9 ^1 ]! y
Affordability gap grows 7 ^. I' p' v' N" u' q: O# u' C9 u
. ~: y- q9 K7 A" N% Z7 mFinancial Post
& O4 H8 X( }* A% V! rPublished: Wednesday, October 18, 2006
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Why own a house when you can rent the same property for a lot less?
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$ v0 {4 m9 f* L/ e% B& E- ~A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.* G8 y- m, D n4 k: f& y5 q
. ]$ h, c) ? f8 z"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
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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.
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"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.
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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.
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: k4 N7 C0 b( M- C* d; s2 fMs. 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.
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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 $1,220 in Vancouver.
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5 @/ S$ x n4 S1 W+ PGenerally though, the trend across the country is home ownership costs are rising faster than rental rates.
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# {- q9 n% S% r6 w' Y4 SBetween 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.
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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.
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" S. G& H+ T4 @% k ?. G. c B& {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 $1,073 per month under a 35-year plan.% G" m. |9 ]4 V5 H% G+ G
' h& e0 j- c6 |$ \& qReal 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.: [, X* A7 m$ Z* s; W C0 p0 N
5 l1 n9 n8 R9 L/ W4 OHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
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"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.
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Disclaimer: This is just published research data and do not express my position. |
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