Price difference between rent and a mortgage is the highest in decades
Mario Ton
Sun
CALGARY — A report on real estate trends indicates that steadily rising home prices and the recent upward drift in mortgage rates is tilting the economics of housing back in favour of renting over home ownership.
The Scotiabank Group report released Tuesday said the difference between the typical monthly mortgage payment on an average resale home in Canada and the average rent on a two-bedroom apartment is currently over $800 — up from about $575 last year and as low as $250 per month in 1997.
“This brings the affordability gap between the two competing accommodation choices back to levels not seen since 1990,” said the report.
This growing gap is creating an economic decision of whether to rent or to own in many Canadians’ minds.
“Now that that gap is growing, I think it’s just a part of the slowing down of the overall housing market,” said Adrienne Warren, senior economist with Scotiabank Group and author of the report.
“Essentially what we saw in the late 1980s and early 1990s were rising home prices had pushed up that rent-versus-own gap to historic highs, and then you saw a period of cooling off in activity. We’re going through a similar process, where gradually vacancy rates have moved up and home prices have moved up and you’re getting a little bit of that shift.”
Warren notes there are sizeable regional differences when calculating the cost of owning versus renting.
“Among major urban areas, the buy-over-rent premium in 2005 ranged from just $31 per month in Winnipeg to $1,220 in Vancouver. Nevertheless, in most centres, the affordability gap is widening.”
Relative price trends in recent years have consistently favoured renters over homeowners, the report said. Between 2000 and 2005, renters’ shelter costs increased at an average annual rate of 1.3 per cent. Homeowners’ costs, on the other hand, rose an average 2.7 per cent yearly. Rising home prices have been a major inflationary factor, but homeowners have also faced relatively larger increases in insurance premiums and maintenance costs. In certain markets the cost increases have been much more dramatic.
In Calgary’s hot housing market, for example, the monthly carrying costs of owning a home have increased more than 60 per cent in the last year. At the same time, rental rates in that city are expected to jump by a record 25 per cent this year, Canada Mortgage and Housing Corp. says.
The average monthly carrying cost for a Calgary homeowner, including principal, interest, taxes, mortgage insurance premium and heating, has hit $2,724. CMHC is forecasting average rental rates in Calgary for a two-bedroom apartment to rise by 25 per cent this year to $1,005 a month compared with $804 in 2005.
© The Vancouver Sun 2006