Home ownership more affordable for the fifth straight quarter but costs could creep up again soon, RBC says

VANCOUVER, B.C. — It is becoming even more affordable to own a home across Canada these days but the costs could creep up again soon as the real estate market rebounds, a new report shows.

RBC senior economist Robert Hogue said home ownership became more affordable for the fifth straight quarter in Canada, and has been restored to pre-housing boom levels.

But Hogue warns the trend of increased affordability, driven by low interest rates and falling home prices as a result of the recession, could soon reverse as the real-estate market recovers.

"Overall in the second quarter we are still seeing some improvement in affordability. That being said, We are probably at the tail end of that phase of the market," Hogue said after releasing the quarterly RBC Housing Affordability survey.

Hogue said house prices are firming up in many parts of Canada and mortgage rates are not expected to fall further.

But Hogue said home owners shouldn't expect a steep jump in the cost of home ownership either. That's because of high unemployment and Canada's slow crawl out of the recession.

"That will weigh a bit on consumer confidence," he said.

The RBC index examines the proportion of pre-tax household income needed to service the costs of owning a home, such as a mortgage, property taxes and utilities.

During the second quarter, the national index fell to 39.1 per cent for a detached bungalow, 31.5 per cent for a standard townhouse, 26.9 per cent for a standard condo and 44.4 per cent for a standard two-storey home.

The report found that measures fell nationally by 0.4 percentage points for standard condominiums and 0.6 per cent for two-storey homes, detached bungalows and standard townhouses.

RBC calculates its index numbers based on an estimated average home price and estimated qualifying income that varies by location and type of property.

Vancouver remained the most expensive place to own a home, where 63.4 per cent of average household income went into home ownership costs, Hogue said.

"The cumulative declines in home ownership costs over the past five quarters have been the sharpest since 1991, which has helped revitalize B.C.'s resale housing market," Hogue said.

"Nonetheless, affordability levels are still above long-term averages, which suggests that affordability in B.C. has yet to be fully restored."

In Toronto, Hogue found 46.5 per cent of household income went towards owning a home, followed by 38.6 per cent in Ottawa, 37.3 per cent in Montreal and 35.7 per cent in Calgary.

"The latest figures show property values are still generally languishing in Calgary, but we believe that, as confidence gradually returns in the city, the stage will be set for a turnaround," added Hogue.

While the costs of owing a home are expected to rise again, Hogue doesn't believe that will stop the "impressive resurgence" in the housing market in recent months.

"Supply of properties for sale is dropping as demand bounces back, which is working to heat up prices again in many parts of the country," he said.

More signs of a real estate rebound came Wednesday when the national housing agency said new home construction increased 12 per cent in August compared to the previous month.

Canada Mortgage and Housing Corp. said the annual rate of housing starts increased to 150,400 units in August from 134,200 in July, with improvements in both the single-and multiple-housing segments.

August's annual rate of urban starts increased by 56 per cent in British Columbia, 16.1 per cent in the Prairies, 13.8 per cent in Ontario, 9.6 per cent in Atlantic Canada, and 2.5 per cent in Quebec.

BMO Capital Markets economist Robert Kavcic said the better-than-expected starts show the Canadian housing sector "is fully in recovery mode."

Kavcic said both sectors have now risen in four of the past six months, with singles sitting at the highest level since the end of 2008.

"While residential building permits have rebounded, resurgent existing home sales have been the real show-stopper," Kavcic said.

He said sales tend to lead starts by a few months, and have surged by more than 60 per cent through July from their winter low.

"With early reports pointing to further strength in August, watch for continued improvement in residential construction activity in the months ahead," he said.


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