Home affordability continued to improve for Canadians in the last quarter, according to the Housing Trends and Affordability report released by RBC Economics Research. Slight rises in home price appreciation, coupled with a modest dip in five-year mortgage rates are the most likely factors.
“Some of the stress that had been building in the housing market between 2009 and the first half of 2010 has been relieved, but tensions persist overall and the recent improvement in affordability is likely to be short-lived,” said Robert Hogue, senior economist, RBC, speaking with PropertyWire.Ca. “We expect that the Bank of Canada will resume its rate hike campaign this spring and with borrowing costs set to climb further in the next two years, housing affordability will erode across the country. That said, we don’t expect this to derail the housing market because of rising household income and job creation from the sustained economic recovery.”
Says Hogue, there are additional elements leading to an expectation of balance. “There is also expected balance between supply and demand. Prices will also likely stay flat, with small increases. In that context- the market is calm and moving sideways in the likely outcome. There is no real rush to buy, and no rush to sell.”
“Across the country, markets by and large are in balanced range.”
Price appreciation has fallen back to more manageable levels, in the face of this new balance in the market. The expectation is that price appreciation will continue, but a much slower, and more sustainable pace than had been seen in recent years.
“We expect affordability measures will rise gradually in the next three years or so while monetary policy is readjusted, but will land softly thereafter once interest rates stabilize at higher levels,” added Hogue. “This pattern would be consistent with moderate yet sustained stress on Canada’s housing market. Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases.”
Looking at different housing types across the country, the detached bungalow benchmark measure fell back slightly to 39.9%; Standard condominium measure fell to 27.6%; the standard two-storey home fell to 46%.
Most provinces reported forward movement in terms of affordability- most notably in Alberta. Decreases continued in Alberta- this time declining by “1.0% to 2.4%.” This builds on top of consistent declines since 2007. The combination of lower interest rates, and steadily decreasing home prices, have both contributed to the increase in affordability.
According to the report, the days for this may be numbered in Alberta,” The significant improvement in affordability is near the end of its line, however, as demand has shown more vigour in recent months – alongside a provincial economy that is gaining more traction – and the market has become better balanced. RBC expects that this will stem price declines this year, thereby removing a potential offset to the negative effect of projected rise in interest rates on affordability.”
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