Canadian Housing Affordability Improves 4Q 2010

Decreases in five-year fixed mortgage rates and minimal home price appreciation made housing more affordable. This is a far cry from affordability due to a massive decrease in housing prices (great for those getting, brutal for those looking to renew their mortgages).

With the impending rate hike those who are looking at a home worth less and a high mortgage payment, they may find themselves in dire straits. However, a housing bubble doesn’t seem to be supported by the emerging data on Canadian housing.

The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a specified category of home. During the fourth quarter of 2010, measures at the national level fell between 0.4 and 0.8 percentage points across the housing types tracked by RBC (a decrease represents an improvement in affordability).

The majority of provinces saw improvements in affordability in the fourth quarter, most notably in Alberta where falling home prices once again contributed to lower the bar for affording a home. Only the standard two-storey benchmark became less affordable in Ontario and Quebec, as did the standard condominium apartment in Quebec and the Atlantic region.

Prices for a detached bungalow in Canada’s largest cities were as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).

Highlights from across Canada:

BC: Buying a home in B.C. became slightly more affordable in the fourth quarter of 2010, due primarily to a small drop in mortgage rates.

Alberta officially became the most affordable provincial market in the country in the fourth quarter, according to the RBC Measures which fell once again by 1.0 to 2.4 percentage points, extending their declines since late-2007.

Saskatchewan: The provincial housing market finished 2010 on an enviable note as affordability improved even though home prices, for the most part, rose slightly in the fourth quarter. The home resale market gained back solid forward momentum in the second half of 2010, notwithstanding some softening in the final months, which re-established a stronger balance between demand and supply.

Manitoba’s home prices were higher but ownership costs were lower. Thanks to lower mortgage rates in the quarter and continued growth in household income, the negative effect of small gains in property values on affordability was more than offset.

Ontario: A slowdown in market activity in the spring and summer last year largely reflected various transitory factors – including the introduction of the HST and changes in mortgage lending rules – that brought demand forward to the start of the year.

Quebec: Higher home prices in the fourth quarter of 2010 caused some deterioration in affordability following meaningful improvement in the previous period.

Atlantic Canada: Home resale activity sputtered late in 2010 and reversed some of the gains achieved at the end of the summer and early fall. Market conditions have recently swung in favour of buyers which will exert downward pressure on prices in coming months.

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