As Europe’s economic and financial troubles persist, B.C. homeowners will have a slight edge over renters.
According to BC Stats, the costs of owning a home have decreased nearly 4% since 2008 as the Consumer Price Index (CPI) for owned accommodation dipped to 111.5 in May from 116 at the end of 2008.
The decline coincides with the drop in the Bank of Canada (BoC) overnight rate, which started falling at the end of 2007 to a record low of 0.25% by spring 2009 before edging up to 1% by 2010.
BoC governor Mark Carney has kept the overnight rate at 1% for nearly two years. Homeowners with variable-rate mortgages have consequently benefited because more of their monthly payment goes toward their mortgage’s principal and their monthly payments have been lower when their mortgage term comes due.
Rates for homeowners with fixed-rate mortgages have also decreased as long-term bond yields have fallen to record lows as the persistent sovereign debt crisis in Europe has prolonged global economic uncertainty.
Renters, on the other hand, have not benefited from the crisis. The costs associated with rental accommodation in B.C. have risen 5.7% over the past five years and show no signs of falling.
The challenge for renters is that while they don’t benefit from falling interest rates, they bear the brunt of other rising costs. Over the past five years, the price of electricity has increased on average 26% and property taxes in B.C. have risen 19%. Natural gas prices have fallen 17% during the same period, but the cost savings likely benefit landlords more than tenants.
The benefits of home ownership appear to be most notable in Greater Victoria. The CPI for owned accommodation has fallen 7.4% since 2008, whereas Victoria’s CPI for rentals has risen 6% in the same period.
With home ownership inflation falling only 0.75%, Metro Vancouver homeowners appear to have benefited the least in B.C. Meanwhile, Lower Mainland renters have seen costs rise 6.2% over the past five years. •