Canadian homeownership costs ease, for now: RBC Economics

The report said slight decreases in five-year fixed rate mortgage rates and minimal home price appreciation across the country led to a second straight quarter of eased housing affordability in Canada. But mortgage rates are expected to rise again this year.

“We expect that the Bank of Canada will resume its rate hike campaign this spring,” said Robert Hogue, a senior economist with RBC. “With borrowing costs set to climb further in the next two years, housing affordability will erode across the country.”

But that won’t be enough to derail the housing market, said Hogue, because rising household income and job creation have boosted the overall economy.

The RBC Housing Affordability Measure takes the pre-tax household income needed to service the cost of owning a specific category of average home. During the last quarter of 2010, the measure dropped 0.4 and 0.8 percentage points across all housing types tracked.

In some provinces, affordability improved despite gains in home prices. That was the case in British Columbia, Saskatchewan, Manitoba and Ontario. In Alberta, affordability benefitted from both lower rates and further depreciated home prices.

“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 said of Alberta.

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