Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
% H7 q/ \" B4 a2 k8 \4 j$ zAffordability gap grows  
" ?4 S: K2 u4 u. D3 I$ M( A! I& f
2 F3 m2 O; J1 Z' SFinancial Post
Published: Wednesday, October 18, 2006
% {1 z; I) I/ i) W* U  }* \* G
Why own a house when you can rent the same property for a lot less?
9 K" r$ l" b9 y# c% [$ E
& y: K& j4 ^& ^/ FA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
3 u6 T  z$ ~; Q& a# @* t
"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.

6 a. N; f7 c( @) g% ~6 |; m4 |7 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.
  a6 q! I- S( A# a1 \
9 v7 s; N, ?1 l- a" J& P"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.

! a$ n7 b# ?  M1 t" O4 n+ GThe 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.
8 o0 L: k! E" c% C1 K
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.
9 \8 A( v7 m( Q# T, s" C/ z! E
; R+ Z2 J; i* O; Z8 COne 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.
$ d& A. T3 ]; t0 E+ W: X
& S+ m9 j% d2 \! Y  {Generally though, the trend across the country is home ownership costs are rising faster than rental rates.
$ k3 q# D. C6 J
: Z, a, h: D$ k# I( }/ A& IBetween 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.
2 e& R' z# b5 n8 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 $1,073 per month under a 35-year plan.
: ^* M' @1 l5 V4 ?" X
) A$ g1 t5 K4 q3 q( t4 z9 c0 FReal 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.

) t! ?( F. a1 j' c' ]However, Mr. Campbell said apartments are affected by rent controls in many markets.

"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.
# ?) N  b- t& q/ m5 T/ s1 V6 n# `
' x% F( M1 b; I! C1 d! L7 t/ ~; y
Disclaimer: This is just published research data and do not express my position.