Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
" ~; I, j+ E- m/ k- |6 S, R0 E$ X3 pAffordability gap grows  
, c3 ], k9 J$ b' E# K$ A
1 L0 z' t: I: u; o/ m0 d+ h  hFinancial Post
Published: Wednesday, October 18, 2006

: [* p: x9 a3 _# f0 g2 f1 }1 G: [Why own a house when you can rent the same property for a lot less?
2 P, f9 z) `, H% \( x- {
, D* B: w: Z/ O+ E3 ?! GA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.

- G/ t2 m. M- O+ j# i2 X) k! F"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
4 N0 H8 x. M) K8 U$ Y( ?7 X1 M
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.

+ ?3 Z4 M4 O" G- v"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.

5 a1 P; n, {" s6 v* DMs. 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.
" h; i* c! a* q' [
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.

- B7 K# l$ e: D1 t! MGenerally 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 V9 s: Z9 c4 Y8 ^" oOne 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.
2 c8 @& Y; e- O% R' q2 a" W
1 ^! ~9 k' B/ y+ }' @' [' ZReal 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.
0 \5 H9 q  G2 E6 N
- p) @3 X# D, h% B* z% D0 SHowever, Mr. Campbell said apartments are affected by rent controls in many markets.
: g3 [7 T/ Y# y6 f2 h5 X
, L. k/ P2 f* R+ j& g. B"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 $1,000," he said.
5 I% `7 Z$ B! k2 ?& n5 o
; r. j: J$ y0 B+ j  B7 c0 F5 H
Disclaimer: This is just published research data and do not express my position.