It’s becoming more affordable to own a home, according to Royal Bank of Canada, but the high cost of ownership will act as a drag on the market and keep a lid on future price increases.
In its quarterly housing affordability report, Royal Bank of Canada said the cost of home ownership moved lower for the first time in more than a year over the summer, as low mortgage rates and prices made it easier for buyers to pay for their homes.
But while homes were more affordable they were still more expensive than long-term averages in many markets, suggesting “greater than usual tensions exist for Canadian home buyers.”
“These tensions are unlikely to derail demand for housing in the near term but will act as a restraint on growth in market activity going forward,” said senior economist Robert Hogue.
It’s the first time affordability has improved since mid-2009. The RBC Housing Affordability Measure shows the proportion of median pre-tax household income required to pay the principal and interest on a mortgage, property taxes and utilities. The figures assume a 25 per cent down payment and a 25-year loan at a five-year fixed rate.
In the third quarter, a two-storey home ate up 46.3 per cent of the household income of a typical Canadian family, down from 48.9 per cent in the second quarter. The long-term average – going back to 1985 – is 43.3 per cent.
The bank said the improvement could be short lived if mortgage rates begin to move higher to reflect an improving economy.
“Higher mortgage rates will be the dominant factor raising homeownership costs over the medium term, although increasing household income as the job situation continues to strengthen in Canada will provide some positive offset,” he said. “We expect housing demand and supply to remain mostly in balance, setting the course for very modest home price increases.”
From the report:
Ontario: “RBC’s Housing Affordability Measures fell between 1.3 and 2.4 percentage points, fully reversing the increase in the second quarter. Meanwhile, existing home sales ended their earlier precipitous slide by sustaining three straight gains (on a seasonally adjusted basis) from August to October. This recovery confirmed our earlier expectation that the slowdown in activity in the spring and summer largely reflected various transitory factors – including the HST and changes in mortgage lending rules – that brought demand forward to the start of this year. With the market now back in balance, the recent softness in home prices will likely prove to be a healthy recalibrating following a strong rally.”
by Steve Ladurantaye, The Globe and Mail