Thursday, October 19, 2006

To Rent Or To Buy?

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 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.

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. It's just a part of the slowing down of the overall housing market.

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.

Relative price trends in recent years have consistently favoured renters over homeowners. Between 2000 and 2005, renters' shelter costs increased at an average annual rate of 1.3 %. Homeowners' costs, on the other hand, rose an average 2.7 % yearly. Rising home prices have been a major inflationary factor, but homeowners have also faced relatively larger increases in insurance premiums and maintenance costs.


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