Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
* ~+ g* r6 ~! m) F& [" gAffordability gap grows  

% r% X7 |9 w& b, S# A6 \8 c4 ]. WFinancial Post
4 V3 v$ I/ r% y7 IPublished: Wednesday, October 18, 2006

0 y4 b( h* C- y$ N! AWhy own a house when you can rent the same property for a lot less?

8 O) d* ~/ l( |3 s$ f  c, |( DA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
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6 c; o2 {' b/ O0 T0 m"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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: W, Z; G. Y1 O" G0 uThe 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.

7 C2 G0 @; y1 Q  I5 o, n"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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% B/ R6 n/ \) V, k% Q. J9 A7 hMs. 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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8 G+ H. f1 P  I# P3 O* ~- dOne 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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9 F- Q9 t5 X  G/ e" e3 n; rGenerally 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.

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.

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.
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; `! ^. N( Q9 E, Z; ~0 Z' y9 eReal 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.
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6 p9 d; l4 x; u1 |However, Mr. Campbell said apartments are affected by rent controls in many markets.
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! o8 b7 T- U1 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.
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Disclaimer: This is just published research data and do not express my position.