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Rentals cheaper as mortgages climb, study finds
4 s# S& J- b# F1 i( FAffordability gap grows " W5 u% U& t) Q6 f3 w) X
+ T) W; t# z; pFinancial Post
w; O M }6 x. y# V, ~! hPublished: Wednesday, October 18, 2006
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# z, x" w: M4 r, o- @* a! QWhy own a house when you can rent the same property for a lot less?9 m: X$ p5 e5 |! z, x- _
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A new study from Bank of Nova Scotia says the pendulum has swung back in favour of tenants.
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"The affordability gap between renting and owning is at its highest level since 1990," said Adrienne Warren, senior economist with the bank.! F! k i0 q# a4 {) O* u
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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 $800 in 2006.) y9 \$ ~% v N
Z& e2 m2 J. s. U) q"This is a fairly typical pattern that you see in housing. As house prices move up, affordability becomes an issue for first-time buyers," said Ms. Warren, adding renting becomes a more viable option.! B) K! S# M- _8 x$ y
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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.4 s/ T/ E6 X6 p. |
( r. X2 W2 ^1 b, J7 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.* Z' |/ J6 r; S8 w% h1 ?2 N( w
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Generally though, the trend across the country is home ownership costs are rising faster than rental rates.
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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.: a% i' w! O. n* I! _! `
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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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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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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.7 x+ v' P/ F6 d' h/ i) c
; D0 C4 k+ [: B) Z& _; pHowever, Mr. Campbell said apartments are affected by rent controls in many markets.) k4 Y) @; w1 S, \3 _# n
; E q: _) D0 t"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 $1,000," he said.+ @$ |1 P' e; P/ O X5 K$ g, f7 g, Q
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Disclaimer: This is just published research data and do not express my position. |
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