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Home price increases across Canada remained subdued throughout Q1 2015, finds the latest housing trends report by RBC.

In particular, the report says mortgage-rate declines that took place earlier this year contributed to improved levels of affordability in many markets.

And, “the plunge in oil prices tipped the market in favour of buyers, due to softening home prices and ownership costs” in affected regions, says Craig Wright, senior vice-president and chief economist at RBC.

“At the other end of the spectrum,” he adds, “solid price increases continued to erode housing affordability in Toronto and Vancouver, which remain Canada’s hottest markets.”

Read: Developers banking on soaring home prices

Still, home resales picked up after winter ended, finds the report. Resales rose 11.2% between February and May, to 521,400 units nationally, and 11.1% above the 10-year average. Currently, demand is strongest in Vancouver and Toronto, though Montreal and Ottawa also began to heat up.

So the bank predicts Canada’s home resales will rise modestly by 1.5% to 488,500 units in 2015, up from 481,200 units in 2014—the increase will mainly reflect strength in B.C. and Ontario, with mild gains in other oil-consuming provinces also making a contribution.

RBC says to expect partial offsets to that growth due to declines in Alberta, which will be down by nearly 21%, and Saskatchewan, which will be down by 13%.

“It’s likely we’ll see small price declines in the markets dependent on oil, which suggests that home ownership costs may fall further in Alberta, Saskatchewan and possibly markets in Atlantic Canada as well,” says Wright.

Read: Canadians positive on real estate

“We also anticipate strong price momentum to further erode affordability in Toronto and Vancouver, particularly in the single-detached home segments.”

Effect of interest rates

The report finds eventual normalization of monetary policy, which is expected to begin in Q2 2016, could adversely impact affordability levels across Canada.

Read: No rate hike yet, says U.S. Fed

Wright says, “Exceptionally low interest rates have been a key factor keeping housing affordability levels in a largely manageable state in recent years. The knock-on effect of the anticipated rise in rates would be most visible in high-priced markets.”

But affordability generally remains neutral in Canada. For example, RBC’s benchmark housing affordability measure for detached bungalows in Canada’s largest cities remains steady. Vancouver stands at 85.6, up 2.8% from Q4 2014, while Toronto is at 57.3, up only 0.6% from last quarter.

Meanwhile, markets in Montreal, Ottawa, Calgary and Edmonton fell by less than 1% in Q1 2015.

Originally published on Advisor.ca

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