Homes more affordable for now

Home ownership became more affordable for the average Canadian in the last quarter of 2010, with the most significant improvement in Alberta, says the Royal Bank. The bank's housing affordability measure shows costs associated with owning a home in comparison to income slightly declined in the last three months of last year.

That's mostly because mortgage costs were slightly lower and house prices rose only minimally, while in some markets prices even dropped.

RBC said affordability improved the most for detached bungalows, falling 0.8 percentage points to 39.9 per cent of pre-tax household income.

The respite is likely to be short-lived, however, the Royal Bank says in its latest housing report.

It notes that recently financially institutions raised posted mortgage rates by a quarter-point to 5.44 per cent, in the case of a five-year fixed term, and that the Bank of Canada is expected to start hiking short-term rates later this spring.

But the bank stresses that while it will become harder to buy a home as rates rise, the impact on affordability will only increase moderately.

First, interest rates are expected to appreciate slowly, and their impact is being offset by rising incomes and job creation growth.

In the last three months of 2010, affordability improved the most in Alberta, due to falling home prices.

The bank said home prices inched higher in most of the country in the last quarter, with the exception of Alberta and condominium segments in British Columbia and Saskatchewan.

The Toronto market sustained a rebound in the latter part of last year, with affordability improving except for the two-storey home category.

See the full RBC affordability report »

February 24, 2011 in Housing Affordability | Permalink | Comments (17) | TrackBack

Housing becoming less affordable

Canada's homeownership costs continue to climb despite slowing resale activity: RBC Economics

Homeownership costs in the second quarter rose across Canada for the fourth consecutive time despite the recent slowing in resale market activity, according to the latest housing report released today by RBC Economics Research.

"Higher mortgage rates in tandem with a further appreciation in home prices boosted the monthly costs associated with carrying a mortgage on a typical home," said Robert Hogue, senior economist, RBC. "This extended the deteriorating trend in affordability since the middle of last year; however, affordability levels in Canada generally remain within a safe range."

The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a home of a certain category. During the second quarter of 2010, measures at the national level rose between 1.1 and 2.1 percentage points across the housing types tracked by RBC (the higher the measure, the more difficult it is to afford a home).

The detached bungalow benchmark measure rose by 1.9 of a percentage point to 42.9 per cent, the standard townhouse inched up by 1.1 of a percentage point to 34.1 per cent, the standard condominium climbed by 1.1 of a percentage point up to 29.3 per cent and the standard two-storey home experienced the largest increase, climbing 2.1 percentage points to 48.9 per cent.

The report notes that the slide in affordability over the past year has reversed approximately half of the considerable improvements in affordability witnessed in 2008 and early 2009.

RBC projects a temporary easing in housing affordability as a result of the recent decline in mortgage rates and the increasing evidence that home prices have started to stabilize in many markets. However, the Bank of Canada is expected to continue raising interest rates over the next 12 to 18 months which will become the dominant factor making homeownership less affordable once the near-term reprieve has passed.

"Current levels of affordability suggest some greater-than-usual stress weighing on Canadian homebuyers, but this does not represent an imminent threat to the market," noted Hogue. "While we expect rising interest rates to increase mortgage servicing costs, a leveling off in home prices and increasing household income will partly offset the negative effect."

Ontario and B.C. saw the most significant deterioration in affordability in the second quarter; however, some improvements in specific housing types occurred in Alberta (condominiums) and Saskatchewan (townhouses). All other provinces showed modest erosion, with the exception of two-storey homes in Manitoba where the rise in the RBC measure was quite substantial.

RBC's Housing Affordability Measure for a detached bungalow in Canada's largest cities is as follows: Vancouver 74.0 per cent (up 1.7 percentage points from the last quarter), Toronto 50.2 per cent (up 2.4 percentage points), Montreal 43.2 per cent (up 1.8 percentage points), Ottawa 41.2 per cent (up 3.6 percentage points), Calgary 39.2 per cent (up 0.9 percentage point) and Edmonton 34.7 (up 2.5 percentage points).

The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Highlights from across Canada:

The full RBC Housing Affordability report is available online.

September 27, 2010 in Housing Affordability | Permalink | Comments (16) | TrackBack


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