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Home ownership gets more expensive
Canadians will find it more expensive to own a home this year and in 2011, as higher interest rates are expected to chip away at affordability even as the rise in home prices begins to subside, two of Canada's major banks predicted Tuesday. A report by RBC Economics Research released Tuesday said affordability would deteriorate throughout 2010 and 2011 as rising interest rates increase mortgage and other loan payments.
"Some erosion in affordability is going to come from higher interest rates... (meanwhile) prices continue to rise. Combine the two and I think the second quarter you should expect some further deterioration in affordability," said RBC senior economist Robert Hogue.
Canada's hot housing market is coming back into balance between supply and demand following a seller-friendly period in which buyers competed for — and drove up the prices of — the few houses for sale during the first stages of economic recovery.
As demand cools and supplies increase, the pace of price increases will slow, but won't fall fast enough to offset rising interest and mortgage rates, Hogue said.
"I'd be hard-pressed to see any kind of the recent pace in price increases being maintained, but it might not be an outright decline any time very soon," he added.
The RBC report found home ownership costs in Canada rose across all housing segments in the first three months of 2010 — the third quarter of increases in a row.
With the exception of Alberta, home affordability measures deteriorated across all provinces with significant declines in affordability in British Columbia, Saskatchewan and Manitoba. Housing affordability declined more moderately in Quebec, Ontario and Atlantic Canada.
Meanwhile, a new report from the Canadian Real Estate Association found that Canadian home prices are unlikely to undergo the type of sharp correction seen south of the border, where prices plummeted and foreclosures ensued.
The CREA report says the current period of high home prices is a natural part of the demand-driven market cycle.
"The Canadian housing market is now widely thought to be at, or very near, the top of a cycle, and the ratio of home prices to incomes is currently high," said its chief economist Gregory Klump.
The CREA report said the income-to-house price ratio will soon revert to its long-term average as it always does as part of a normal housing market cycle.
"History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again," Klump said.
Unlike their U.S. counterparts, Canadian mortgage holders have borrowed conservatively and are accelerating mortgage repayment, which will give options to those who may face financial difficulties when they renew their mortgage at a higher rate, the report said.
A report on housing affordability by CIBC World Markets on Tuesday suggested about 1.5 million, or 17 per cent, of houses in Canada, are currently overvalued.
CIBC senior economist Benjamin estimated that, on average, Canadian home prices are now around 14 per cent over their "fair" value, adding there would likely be a five to ten per cent price correction in the next few years.
"This pace of appreciation has been quicker than justified by housing market fundamentals such as income, rent or demographic changes," Tal wrote in the report.
"While the booming housing market is starting to come back to earth, the fact that prices are overvalued today does not necessarily mean that they will crash tomorrow," he added.
Tal's report found the average price of a house has risen by nearly 23 per cent since reaching recent cyclical lows in January 2009. And the erosion of affordability — as interest rates rise faster than prices drop — could cause problems for the most vulnerable segment of the population, he said.
CIBC's new home ownership affordability index found that home ownership is increasingly difficult for families with household incomes less than $50,000, who on average spend close to 60 per cent of their gross income on mortgage payments, property taxes and electricity costs.
The report found that Canadians today spend 15.6 per cent of their average gross personal income on mortgage payments, which is about the same as 10 years ago. When adding in electricity bills and property taxes, it rises to about 22 per cent of gross income.
Tal predicted that in the second quarter of the year, affordability will continue to deteriorate, even as prices level off. He added that home prices will fall in the second half of the year and in to 2011, which will improve affordability.
"I don't think affordability will be a major issue over the next two years. I think it will be relatively stable with interest rates rising, but prices actually going down a little bit," he said.
May 26, 2010 in Canadian Real Estate Market | Permalink
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Comments
The market in Austin texas is slowly creeping back up to respectability. How is the Canadian market as of now?
Posted by: Austin Texas Real Estate | Jun 16, 2011 4:52:14 PM
There more satisfying than watching your real state tips but good for all business professional.
Posted by: Lake Placid Homes | Oct 4, 2010 6:24:03 AM
I found this blog informative.the mortgage rates charge to be aloft in adjustment to assure consumers from spending too abundant on a home.
Posted by: Costa Rica Real Estate | Aug 2, 2010 5:59:26 AM
People need to do their homework before they purchase. This may upset some realtors, but not all realtors understand the history of the housing market, let alone what the future may hold. The simple answers that worked for the last 50 years in Canada and United States may or may not be the norm for the future. http://qedrealestate.wordpress.com/2010/07/06/what-is-real-estate-normal/
Posted by: QED Real Estate Consulting | Jul 6, 2010 10:22:37 AM
Home ownership is a long term investment and not for everyone. Real estate investments take the "saving" part out of your hands and "puts' it away for you. Helps to build your retirement nest egg. People need a good Realtor that can help to see the future resale value.
Posted by: Don Edmunds | Jun 22, 2010 7:05:08 PM
Now is the worst time to buy. Beware of realtors who have a vested interest since they make money if they sell. Smart money is selling as fast as they can. Look out below.
Posted by: Frank | Jun 21, 2010 11:30:32 PM
Smart money getting out of the market before the crash gets worse. Housing in Canada is in the mother of all housing bubble and is going to crash and crash hard. Realtors on here have a vested interest. They only make money if they sale. This is going to be a bad housing crash.
Posted by: Frank | Jun 21, 2010 11:29:03 PM
I agree, it's a good time to buy real estate right now. Though I have been seeing prices increasing in the GTA lately. <- this guy must be a realtor or a bad one.
One-bedroom apartments rented for an average of $1,463 per month - pay $1.200 and own the place.
For a Toronto apartments price will go up on 40% in 2011.
<- this guy must be also a realtor or such a liar, nowadays one bed rental apartment rent is around $850~$1000.
Posted by: h.s | Jun 9, 2010 1:06:22 AM
I agree, it's a good time to buy real estate right now. Though I have been seeing prices increasing in the GTA lately.
Posted by: edmonton movers | Jun 1, 2010 11:55:35 AM
I definitely have seen many overpriced homes in the last 6 months and it's unfortunate but, the mortgage rates need to be raised in order to protect consumers from spending too much on a home.
Posted by: Don Edmunds | May 31, 2010 10:43:54 AM
GTA-wide average monthly rents increased in all categories. One-bedroom apartments rented for an average of $1,463 per month, up 2 per cent from the average of $1,430 recorded during same period last year. The average rent for two-bedroom apartments was $1,909, up 5 per cent from the average of $1,813 per month recorded during the January- April period of 2009.
Ask your self - why pay this money to somebody else, and not to put this money in your own pocket.
One-bedroom apartments rented for an average of $1,463 per month - pay $1.200 and own the place.
For a Toronto apartments price will go up on 40% in 2011.
Posted by: FreeDeal | May 31, 2010 10:40:55 AM
I found this blog informative. Needs of a person varies from person to person. In order to achieve more success in real estate business now-a-days sales people have to be more specific. Thanks for this
Posted by: Doral Homes | May 31, 2010 5:19:55 AM
Success Principle
http://www.squidoo.com/successprinciple
Posted by: Jane | May 27, 2010 10:29:49 PM
The sooner the better for those who have not entered the real estate market. As interest rates are historically low now (notwithstanding the imminent rate hike by the Bank of Canada); rates will continue to be low.
Posted by: The Chijindu Law Firm | May 27, 2010 9:30:56 PM
