Rentals cheaper as mortgages climb, study finds

dave2004

Rentals cheaper as mortgages climb, study finds
Affordability gap grows  
- ]# C" ~6 |9 J- R/ f9 q# M
Financial Post
Published: Wednesday, October 18, 2006
: `$ P5 O5 L( m3 A1 Q4 W% x, r
1 B: G* _5 P4 ]4 I& PWhy own a house when you can rent the same property for a lot less?

0 Y8 g8 g0 D/ x: l0 lA new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.

( B) _% A' w3 q3 `& f0 T8 H"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.
, p1 v! n7 P9 A+ b% L2 w4 j3 k
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.
1 U9 E0 w3 j  F& z* c; 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.

0 @2 M+ h) T0 G  I4 UThe 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 `$ w9 O5 i; ?# q1 cMs. 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.

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.
- X* j  S& H/ p
Generally though, the trend across the country is home ownership costs are rising faster than rental rates.
  W+ C; m* N. g
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.
- O2 E5 p' e, I8 \% [
! h4 @  L% O- h0 E  q9 COne 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 ]+ x& [8 m' D  e1 NMs. Warren noted that the $1,304 monthly mortgage costs for a $250,000 home with a $25,000 down payment would go down to $1,073 per month under a 35-year plan.
. W) L! v' j; N2 M$ `
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.

4 D7 A  G# |1 i4 \9 EHowever, Mr. Campbell said apartments are affected by rent controls in many markets.

, |7 o' N7 E( y; Z"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.
3 C. L' D. e, ?1 a5 o
- `* W6 Q3 |9 A3 E, T
Disclaimer: This is just published research data and do not express my position.