Housing affordability appears to be improving in Canada, according to RBC’s quarterly numbers released on Wednesday. RBC’s chief economist, Craig Wright, believes that continued low interest rates this year will help keep housing prices and costs reasonable in the near term.
RBC’s report also showed that the financial burden of owning a home declined for the second straight quarter in 2011, thanks to “softer” home prices and higher household incomes. The report found that all categories of housing in the nation, including condominiums and two-storey family properties, have since risen on the affordability scale. Which is great for homeowners, but even better for home hunters. According to the Canadian Real Estate Association, the Canadian housing marketing is predicted to see a 0.3 percent increase in unit sales.
A Look at the Numbers
According to the RBC report, the proportion of pre-tax household income needed to own a standard two-storey home in Canada has dropped by 0.8 of a percentage point. It came to rest at just over 48 percent nationally in the fourth quarter last year. For condominiums, it was down 0.5 percent to 28.5 percent and for detached bungalows it dropped 0.6 of a point to 42.2 percent.
The CREA report predicts that home prices will fall roughly 1.1 percent from 2011 rates to $359,100. But experts aren’t seeing this as a lasting trend; in 2013, the average price is forecast to rebound 0.9 percent to $362,300.
Making Your Dollar Stretch
The modest increase in home sales and affordability is being attributed to rising demand in provinces like Alberta, Saskatchewan and Nova Scotia. But what about Canada’s hot spots, specifically Vancouver and Toronto? Unfortunately, run-up in prices in these urban areas doesn’t appear to be slowing. Economists are still worried that Canadians are overextending themselves by taking out mortgages that they can’t manage – particularly in these expensive markets. In fact, the erosion of affordability levels experienced early last year can be directly attributed to dramatic increases in these two cities, specifically Vancouver. As such, Vancouver remains the nation’s least affordable area. They’re followed closely by Toronto and Montreal.
The housing market in Canada has remained surprisingly robust throughout the recent economic downturn. However, experts believe that this could change suddenly, depending how things unfold in regards to the European economy. “So long as the European debt crisis is contained and a global economic recession is avoided, low interest rates will support Canadian home sales and prices,” explains CREA Chief Economist Gregory Klump.
Finance Minister Jim Flaherty echoed Klump’s opinions on Monday, saying that if things continue the way they are currently are, the Canadian economy could begin to see modest growth. The condo market still has him worried, however. During a statement Monday, Flaherty reminded Canadians about the dangers of irresponsible borrowing. “Interest rates are relatively low, so I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because rates will go up some day and I would not want people to get caught.”