Cost of ownership is outpacing the cost of renting, central credit union says
Derrick Penner
Sun
Housing costs in B.C. rose faster than the rate of inflation during the past 12 months, driven largely by increasing costs of home ownership, the Credit Union Central B.C. reported Friday.
In its Weekly Economic Briefing released Friday, Credit Union Central noted that housing costs, as recorded in Statistics Canada’s consumer price index calculations, were up 2.5 per cent over the past 12 months, compared with an overall inflation rate of 1.5 per cent.
The cost of owning a home was up three per cent during that period, compared with rental cost, which was up only 0.3 per cent from a year ago.
But does that mean a consumer is better off renting than owning? Not necessarily, according to Helmut Pastrick, Credit Union Central’s chief economist.
“It depends on individual circumstances,” Pastrick said. “When you look at the general performance of the price of ownership for housing, the potential for future capital appreciation [and] still low mortgage rates, I would suggest a person continue to look at ownership rather than renting.”
However, Pastrick added that by some measures, such as the price-to-rent ratio, which is used heavily by investors, Vancouver’s real estate prices look overvalued.
Credit Union Central reported that Vancouver’s price-to-rent ratio hit 40 in 2005, which means the average home price was 40-times greater than the rental income that an owner could expect to earn from the unit.
The report compared that with 2001, when the ratio was 26.
However, Pastrick said that when mortgage carrying costs — which are currently low — are factored in, much of the disparity apparent in the price-to-income ratio disappears, “and housing is generally still affordable.”
Pastrick added that while a very high price-to-rent ratio is sometimes considered a sign that a bubble is forming in the market, other factors need to be present, such as a high level of market speculation.
He said there does not appear to be much speculation in Vancouver’s market, and he doesn’t believe there is a bubble.
“I’m not discounting that a bubble could develop, I’m not discounting that the market could soften or turn down,” Pastrick said. “I just don’t know when it’s going to happen.
“Certainly one should expect some price correction at some point. It’s just the nature of the market.”
© The Vancouver Sun 2006
